MEMORANDUM & ORDER
WEINSTEIN, Senior District Judge.
TABLE OF CONTENTS
I. Introduction ................................................................. 1018
II. Allegations .................................................................. 1025
A. Burden of Proof ........................................................... 1025
1. Class Certification .................................................... 1025
2. Summary Judgment ....................................................... 1025
B. Sources of Proof........................................................... 1026
C. Overview of the Conspiracy and Fraud ...................................... 1028
D. Other "Light" Cigarette Fraud Actions ..................................... 1029
III. Racketeer Influenced and Corrupt Organizations Act ........................... 1031
A. Violation of Criminal RICO ................................................ 1032
1. Conduct of a Racketeering Enterprise (§ 1962(c)) .................. 1032
a. Enterprise .......................................................... 1032
b. Conduct ............................................................. 1033
c. Racketeering activity ............................................... 1033
d. Pattern ............................................................. 1034
2. Conspiracy (§ 1962(d)) ............................................ 1035
a. Cofacredit .......................................................... 1035
b. Supreme Court precedent ............................................. 1036
c. Subsequent decisions of the Second Circuit and district courts ...... 1038
d. Other circuits ...................................................... 1038
e. Conclusion on conspiracy requirements ............................... 1039
B. Injury to Property ........................................................ 1039
1. Law .................................................................... 1039
2. Defendants' Motion for Summary Judgment on Injury ...................... 1039
a. Proprietary injury .................................................. 1040
b. Personal injury ..................................................... 1042
3. Conclusion on Injury ................................................... 1043
C. Causation and Reliance .................................................... 1043
1. Law .................................................................... 1043
a. Factual causation ................................................... 1043
b. Proximate causation ................................................. 1043
c. Reliance ............................................................ 1044
i. Reliance is required ............................................. 1044
ii. Role of reliance ................................................. 1045
(a) Direct reliance .............................................. 1045
(b) Third-party reliance ......................................... 1045
d. Transaction causation and loss causation ............................ 1045
2. Defendants' Motion for Summary Judgment on Causation ................... 1046
a. Reliance ............................................................ 1046
i. Plaintiffs' claims of reliance ................................... 1046
ii. Reliance showing required in this case ........................... 1047
iii. Plaintiffs have demonstrated reliance ............................ 1048
b. Indirect purchaser rule ............................................. 1050
i. Illinois Brick ................................................... 1052
ii. Inapplicability of Illinois Brick rule ........................... 1053
3. Conclusion on Causation ................................................ 1056
D. Computation of Total Damages .............................................. 1056
Tobacco has been woven into the fabric of American history and society since the 1620's when, as the first cash crop, it saved the colony of Virginia and then, together with cotton, established the economic base for slavery. Edmund S. Morgan, American Slavery, American Freedom, The Orral of Colonial Virginia 112, 310 (Francis Parkman Prize Ed., 2005).
In more recent times, through cigarettes—produced and allegedly fraudulently merchandised on a massive scale—it has become the basis for a pandemic, causing the premature deaths of tens of millions of Americans. This case represents one event in this long narrative: the alleged successful effort of defendants to cozen smokers into continuing to buy their products by convincing them that smoking "light" cigarettes was safer for their health.
It is plaintiffs' view that this campaign caused smokers to buy "light" cigarettes, in large amounts, at a price greater than they would have paid had the truth been acknowledged by defendants. Defendants' acts, plaintiffs contend, constituted a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961 warranting trebled money damages. 18 U.S.C. § 1964(c). Class action status is sought to bring to bear, on a consolidated basis, the weight of all United States smokers' claims.
It is charged—with substantial evidence to support the contention—that plaintiff smokers bought cigarettes characterized as "light," on the suggestion of defendants—the major cigarette manufacturers—that they were less harmful than "regular" cigarettes, when in fact they were at least as dangerous and defendants knew of their dangers. The claim is that the carcinogenic and other adverse effects smokers sought to avoid were not reduced by smoking "light" rather than other cigarettes; that defendants knew this was the case; that they concealed this fact; that they urged plaintiffs—through advertising and other public statements—to smoke these "lights" knowing smokers were being misled; and that they defrauded purchasers of billions of dollars spent for light cigarettes worth less than their purchase price.
On behalf of a prospective class, the named plaintiffs seek class certification pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)(2) and (3) on behalf of the class of persons defined as:
This litigation is another in the continuing battle of plaintiffs' lawyers and their clients with the cigarette industry. While
Early in our history the Supreme Court ruled that a federal court must decide cases properly brought. It:
Cohens v. Virginia, 19 U.S. 264, 6 Wheat. 264, 404, 5 L.Ed. 257 (1821).
While "the federal courts may, in their discretion, [in some narrowly specified classes of cases,] properly withhold the exercise of the jurisdiction conferred upon them where there is no want of another suitable forum," Massachusetts v. Missouri, 308 U.S. 1, 19, 60 S.Ct. 39, 84 L.Ed. 3 (1939), the choice in the present case under the federal RICO statute is not between a United States district court and some other forum, but between this court and no effective forum at all.
Plaintiffs have proposed an elegant analysis of the law and facts as a rationale for certifying this litigation as a class action. Their claim is that they, and a class consisting of tens of millions of smokers, were induced by fraud to buy a kind of cigarettes, "lights," and that they suffered financial damage because they did not get what they thought they were getting—a more valuable, safer cigarette. By relying on federal substantive statutes—the combined "RICO" and Mail and Wire Fraud Acts, 18 U.S.C. §§ 1341, 1343—they seek to avoid one of the serious difficulties with national class cigarette actions: the tort law in the fifty states is not uniform.
They also propose to avoid the other main problem with smokers' class actions: conduct and motive differences among members of the class. Individuals start and quit smoking and choose various types of cigarettes for different reasons and suffer wide variations in possible harm, creating different specific causation and damage issues attributable to each class member. If plaintiffs' experts are to be credited in the testimony promised by plaintiffs' counsel, economic loss of value in purchases of cigarettes allegedly touted as "lighter" when they are not safer avoids this problem of human diversity: first, by the equivalent of statistical averaging and, second, should the jury determine total damages to the class, division of the damages
Defendants, by contrast, in powerful briefs and arguments, point to what they believe are critical defects in the plaintiffs' case on the facts and the law requiring not only denial of class certification, but dismissal of the case. They contend that they committed no fraud, that the statute of limitations has run, and that class action procedures are not applicable. Accordingly, they move to dismiss and to deny class certification.
In considering the matter as it now stands, two powerful factors should be kept in mind: First, is the jury's constitutional role and its vast discretion in evaluating evidence in a civil suit of this kind under Amendment VII of the United States Constitution. The jury's power and capacity to deal with complex facts and come to a reasonable resolution of a dispute should not be underestimated.
Second, is the power of the American legal system to overcome a defense that plaintiffs' claims are so enormous in scope and time, and in diverse persons affected, that they can never be fairly adjudicated in a reasonably comprehensive and relatively inexpensive way. In this connection it is well to recall a central theme of our American legal system: ubi jus, ibi remedium — each right has a remedy. Every violation of a right should have a remedy in court, if that is possible.
Marbury v. Madison, 5 U.S. 137, 1 Cranch 137, 163, 2 L.Ed. 60 (1803) (quoting 3 William Blackstone, Commentaries 23, 109).
In modern times, at least since adoption of the Federal Rules of Civil Procedure and Evidence, the ancient maxim is modified to read, "each violation of a right should have a practicable remedy." A remedy that is impracticable in execution is—for those whose legal rights have been violated—no remedy at all. Procedures developed through American class action jurisprudence should not be frustrated when a large number of small claims can be aggregated and tried in a way fair to both plaintiffs and defendants. Current widespread partial acknowledgment by defendants of the dangers of their product and alleged efforts to reduce smoking by minors and others does not negate any liability for past delicts not subject to the statute of limitations.
Resolution of many of the factual disputes in the case depends upon widely divergent possible inferences that may be drawn from a huge amount of already available evidence of activities by defendants and members of the putative class. While the American jury has been more and more controlled by devices such as summary judgment, the strong policy embodied in Amendment VII, and the pre
In the instant case the wisdom embodied in the Constitution is reflected in the ability of a fair cross section of the community to appreciate and understand evidence of why people smoke, why they do it in certain ways, and what impact actions and policies of defendants in such matters as advertising have had in influencing behavior. The federal petty civil jury provides the ultimate focus group of the law.
In deciding the balance between plaintiffs and defendants, the scale tips heavily in the instant case in favor of allowing a jury rather than a judge to decide the case. Here, in a litigation that arguably might go either way on inferences and facts, the Constitution and basic principle point to certification of the class, allowing the matter to proceed before a jury in a way that is practicable. Denial of motions to dismiss and to exclude relevant and reliable proof, scientific and otherwise, will permit the jury to decide the dispute fairly.
Whether plaintiffs can overcome the defendants' objections to their proof is subject to trial by jury. There is enough merit to both plaintiffs' and defendants' contentions to permit the litigation to go forward. If, as contended by plaintiffs, a huge fraud was perpetrated on tens of millions of people causing them billions of dollars in loss—measured largely by the difference between the value people were led to believe they were getting when they bought "light" cigarettes for safety, and what they received, a non-safe product— recovery dependent on proof should be allowed. The extensive evidence introduced on preliminary motions supports certification of the class and denial of defendants' motions for summary judgment.
While evidence of fraud on the class appears to be quite strong—and defendants have been less than candid in insisting that there was no fraud—evidence of the percentage of the class which was defrauded and the amount of economic damages it suffered appears to be quite weak—and plaintiffs have been less than candid in failing to acknowledge that deficiency in their proof.
The court in United States v. Philip Morris, 449 F.Supp.2d 1 (D.D.C.2006), described in Part II.D, infra and excerpted in Appendix A, supra, has estimated that some fifty percent of those who smoked "light" cigarettes would not have done so had they known the truth. See Appendix A at 449 F.Supp.2d at 280, supra. This estimate, strongly relied on by plaintiffs in argument, see Transcript of Sept. 13, 2006, at 52:5-13, 157:22-159:7, does not fill the gap in their proof since, even if the court was right in United States v. Philip Morris, a significant portion of that fifty percent might have smoked other types of cigarettes purchased at the same price "lights" were selling for. Contrasting the real diverse universe of "lights" smokers with the counterfactual universe of fully advised "lights" smokers to determine the impact of the fraud on the size of the market and its nature for damage purposes is a daunting enterprise even with the many proffered experts holding up their statistical lanterns to help in the search for the truth.
There is considerable merit to defendants' experts' position that many, if not all, the plaintiffs would have bought these light cigarettes even if they knew they provided no health advantage over regular cigarettes, and that they received full value for their money. There are also serious
Essentially, the issue before the court is not whether a fraud case be proven, but whether damages can be proven for the period since each smoker started smoking, failed to stop, switched to, or started with "lights" rather than the standard cigarettes in vogue up to the introduction of "lights" on a large scale. That introduction to "light" smoking and encouragement of continued use by defendants was allegedly in response to a widespread fright induced by the Surgeon General's reports and other warnings of hundreds of thousands of deaths caused yearly by cancer attributable to smoking.
Plaintiffs have demonstrated that they may be able to produce sufficient proof to satisfy a jury as to damages based largely on statistics, the law of large numbers, and their experts' analyses to show a reasonable estimate of total damages, without producing proof of reliance and fraud as to each of millions of smokers, with a damage figure assigned to each smoker and each year that he or she smoked.
If each smoker must be considered separately, as defendants suggest is the case, it would be impossible to proceed with a suit of this nature even if it were absolutely clear that each plaintiff had been damaged in the manner plaintiffs allege. The transactional costs and the relatively small recovery for the difference in value between what an individual smoker paid for and what he received would result in damages measured in tens or hundreds of dollars. The huge costs in bringing this action could not be supported by such individual adjudications.
The question then becomes whether the American legal system, faced with an alleged massive fraud, must throw up its hands and conclude that it has no effective remedy for what at this stage of the litigation must be assumed to be a huge continuing violation of consumers' rights. In the American legal system, whose watchword has been, as already noted, "no right without a remedy," the answer is that modern civil procedure, scientific analysis, and the law of large numbers used by statisticians provide a legal basis for a practical and effective remedy. The plaintiffs are entitled to the chance to prove their allegations.
Candor impels recognition of the fact that the Courts of Appeals have not been kind to massive claims against tobacco companies. Despite repeated findings of fact by judges and juries supporting claims of fraud, appellate courts have repeatedly dismissed such cases whether the claim was for consumer fraud, personal injury, or third party damages for costs of medical treatment. The defendants make a strong case that this suit, too, must founder on that appellate predilection for individual suits.
The case comes down to the role of the jury: should it be permitted to decide this vexing private litigation on the basis of
AMENDMENT VII
RIGHTS IN CIVIL CASES
See also Brink's Inc. v. City of New York, 717 F.2d 700, 711 (2d Cir.1983) ("There is no bright line that divides evidence worthy of consideration by a jury, although subject to heavy counter-attack, from evidence that is not. Especially because of the guaranty of the Seventh Amendment, a federal court must be exceedingly careful not to set the threshold to the jury room too high.") (quoting. Herman Schwabe, Inc. v. United Shoe Machinery Corp., 297 F.2d 906, 912 (2d Cir.), cert. denied, 369 U.S. 865, 82 S.Ct. 1031, 8 L.Ed.2d 85 (1962)).
If this case presents issues for the jury—as is now the decision of this court— then both the certification question and defense motions for summary judgment should be—and now are—decided in plaintiffs' favor. That the court believes, on the evidence thus far produced, that the amount of possible damages has been grossly exaggerated by plaintiffs is not a basis for denying their right to a jury trial. Adjustments to damages can be made after all the evidence is in and the jury has made its decision, if that decision is unreasonable.
In Part II and Appendices A, B, C, and D, allegations and prior findings of fact against the tobacco companies on the fraud issue are sampled: First, is the general fraud in hiding the dangers of smoking, and second, is the particular fraud respecting lights. Appendix E includes portions of a Untied States Surgeon General's report on the health risks posed by "light" cigarettes and the history of their development. Appendix F includes portions of a recent Commonwealth of Massachusetts report on continuing increases in nicotine inhaled from cigarettes, including those designated as "light." In Part III, the law of RICO is analyzed and defendants' central motions for dismissal considered.
In Part IV the court considers the role of collateral estoppel in this litigation. Whether an adjudication against either side would be binding on collateral estoppel grounds in suits based on substantive theories similar to the one implicated in the present litigation when recovery is sought for physical injury to smokers rather than economic loss from the purchase of overpriced cigarettes is important. Recoveries for medical damage to the person of smokers are enormously higher than those sought now. This legal problem and the related problem of splitting a cause of action, also discussed in Part IV, do not trump class action advantages since members of the class can opt out. It is a factor, however, that needs evaluation in the context of certification.
In Parts V and VI, the parties' additional motions for summary judgment are discussed and resolved. Part VII addresses the motion for class certification. The question of class certification is critical for this court and the Court of Appeals. No individual can afford to prosecute the case alone. Denial of certification here or on
Part X considers application of Rule 23(f) or section 1292(b) of title 18 to an interlocutory appeal. Based on experience with the trial and other disposition of a number of aggregate tobacco actions in this court, it is the opinion of the court that this class action can be tried to a final judgment that provides appropriate protection against relitigation of the issues adjudicated with fidelity to the applicable substantive law. Federal courts have the institutional capacity to conduct these proceedings. The representation of defendants and plaintiffs is adequate to conduct the litigation for the benefit of all persons whose interests are being adjudicated.
An immediate stay is rejected in Part XI. The Court of Appeals has the power to grant such a stay, but the case, in the trial court's opinion, should promptly proceed in view of its long history.
Part XII orders that the class sought by plaintiffs be certified. The motions for summary judgment are denied.
Numerous interlocutory orders have been issued in this litigation. See Schwab v. Philip Morris, No. 04-CV-1945, 2006 WL 721368 (E.D.N.Y. Mar. 20, 2006) (overruling plaintiffs' objections to magistrate judge's orders); 2005 WL 3032556 (E.D.N.Y. Nov. 14, 2005) (discussing fluid recovery); 2005 WL 2467766 (E.D.N.Y. Oct. 6, 2005) (denying defendants' motion for summary judgment on statute of limitations); 2005 WL 2401647 (E.D.N.Y. Sept. 29; 2005) (Daubert issues); 2005 WL 2401645 (E.D.N.Y. Sept. 27, 2005) (denying plaintiffs' motions for partial summary judgment and application of collateral estoppel); 2005 WL 2401635 (E.D.N.Y. Sept. 27, 2005) (denying defendants' motion to dismiss claims based on increased mutagenicity of "light" cigarettes); 2005 WL 2401638 (E.D.N.Y. Sept. 27, 2005) (denying plaintiffs' motion to exclude testimony that "light" cigarettes are safer than regular cigarettes); 2005 WL 2401639 (E.D.N.Y. Sept. 27, 2005) (denying plaintiffs' Rule 16(c) motion for simplification of the issues); 2005 WL 2401642 (E.D.N.Y. Sept. 27, 2005) (denying defendant BATCo's motion for summary judgment on all claims); 2005 WL 2401643 (E.D.N.Y. Sept. 27, 2005) (denying defendants' motion to exclude expert testimony on the impact of "light" cigarette marketing on smoking rates); 2005 WL 2401565 (E.D.N.Y. Sept. 26, 2005) (denying plaintiffs' motion for partial summary judgment on the existence of defendants' conspiracy); 2005 WL 2401353 (E.D.N.Y. Sept. 26, 2005) (granting defendant British American Tobacco p.l.c.'s motion to dismiss); 2005 WL 2401350 (E.D.N.Y. Sept. 26, 2005) (denying plaintiffs' motion for partial summary judgment on defendants' claim that they complied with the directives of the public health community in developing "light" cigarettes); 2005 WL 2401276 (E.D.N.Y. Sept. 26, 2005) (denying plaintiffs' motion for partial summary judgment on defendants' claim that smokers knew about compensation and so were not defrauded); 2005 WL 2401633 (E.D.N.Y. Sept. 26, 2005) (denying plaintiffs' motion for a permanent injunction prohibiting defendants from marketing or selling any cigarette with a "light" or "lights" descriptor); 2005 WL 2401196 (E.D.N.Y. Sept. 26, 2005) (denying plaintiffs' motion for partial summary judgment on the meaning of the
1. Class Certification
On a motion for class certification, plaintiffs bear the burden of proving that the requirements of Rule 23 of the Federal Rules of Civil Procedure have been met. Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 614, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); Caridad v. Metro-North Commuter R.R., 191 F.3d 283, 291 (2d Cir.1999). At this stage in the litigation they need not show that they are likely to prevail on the merits. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 178, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). But a "rigorous analysis" to determine that the Rule 23 requirements are met must be conducted. Gen. Tel. Co. of Southwest v. Falcon, 457 U.S. 147, 161, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982). While it is sometimes mistakenly suggested that "a motion for class certification is not an occasion for examination of the merits of the case,'" In re Initial Pub. Offering Sec. Litig., 227 F.R.D. 65, 93 (S.D.N.Y.2004), the courts should not launch the heavy and expensive machinery of the class action unless there is a chance for a recovery. In any event, since defendants combine their opposition to certification with a motion for summary judgment, the merits must be considered.
2. Summary Judgment
Plaintiffs need not prove that they will prevail at trial in order to survive a motion for summary judgment. Summary judgment is appropriate only if "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). See also Mitchell v. Washingtonville Central School District, 190 F.3d 1, 5 (2d Cir.1999).
The burden rests initially with the moving party to demonstrate the absence of a genuine issue of material fact. Goenaga v. March of Dimes Birth Defects Found., 51 F.3d 14, 18 (2d Cir.1995); see also Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). If the moving party appears to meet this burden, the opposing party must produce evidence that raises a material question of fact to defeat the motion. See Fed.R.Civ.P. 56(e). This evidence may not consist of "mere conclusory allegations, speculation or conjecture[.]" Cifarelli v. Village of Babylon, 93 F.3d 47, 51 (2d Cir.1996). See also Delaware & Hudson Ry. v. Consolidated Rail Corp., 902 F.2d 174, 178 (2d Cir.1990) ("Conclusory allegations will not suffice to create a genuine issue.").
The mere existence of some peripheral factual disputes will not defeat an otherwise properly supported motion for summary
In deciding the motion, all inferences from, and ambiguities in, the underlying facts are to be resolved in favor of the party opposing summary judgment. Matsushita Elec. Indus. Co. v. Zenith Radio Carp., 475 U.S. 574, 587-88, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Only when reasonable minds could not differ as to the import of the proffered evidence is summary judgment proper. See Anderson, 477 U.S. at 250-52, 106 S.Ct. 2505; Bryant v. Maffucci, 923 F.2d 979, 982 (2d Cir.1991).
"In considering the motion, the court's responsibility is not to resolve disputed issues of fact but to assess whether there are factual issues to be tried." Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir.1986). Critical is recognition of the jury's fact-finding primacy:
Curry v. City of Syracuse, 316 F.3d 324, 333 (2d Cir.2003) (quotation marks omitted).
Defendants in this case have outproduced plaintiffs—in documents, number of experts, etc.—by at least two to one. Yet summary judgment, even in a large, complicated litigation such as this one, does not hinge on volume. If plaintiffs' legal theory is sound, and if they can demonstrate that proof is available to support it, summary judgment for defendants is inappropriate. The materials supplied by both parties demonstrate that plaintiffs have available sufficient evidence, and a legal theory sufficiently sound, to withstand a motion for summary judgment.
The record is immense. Plaintiffs and defendants have submitted 200 volumes of documentary evidence, expert reports, and briefs. They have appeared before the court numerous times since suit was filed in May 2004. Argument on the dispositive motions was heard over two days in September 2005 and again in September 2006. Discovery was conducted under Magistrate Judge Steven Gold for over a year and a half. The docket contains some 1000 entries.
Aspects of the cigarette litigation before this and other courts provide additional sources of proof for decision on the summary judgment and certification motions. See, e.g., United States v. Philip Morris USA, Inc., 449 F.Supp.2d 1 (D.D.C.2006) (part 1 of 6) (final order containing findings of fact and law after 9-month bench trial on federal government's civil RICO suit against tobacco manufacturers for mail and wire fraud); Davies v. Philip Morris USA, Inc., No. 04-2-08174-2, 2006 WL 1600067 (Wash.Super. May 26, 2006) (denying certification of class of Washington smokers of Marlboro Lights alleging fraud under state consumer protection act); Pearson v. Philip Morris, Inc., No. 0211-11819, 2006 WL 663004 (Or.Cir. Feb. 23, 2006) (denying certification of class of Oregon smokers of Marlboro Lights alleging fraud under state consumer protection act); Aspinall v. Philip Morris Companies, Inc., 442 Mass. 381, 813 N.E.2d 476
Of particular note is the comprehensive recent opinion in the federal government's civil RICO suit against these same defendants, alleging in part the same fraudulent behavior as is now being charged. The opinion runs to 1,742 pages and is minutely documented. See United States v. Philip Morris USA, Inc., supra. Defendants object to the use of the district court's findings in that suit—and the evidence upon which they were based—on the motions in this litigation. They argue that, because the district court considered the entire "low tar" market segment, which includes brands not bearing the "lights" descriptor, much of the evidence from the prior suit is irrelevant to this suit. The argument ignores the problem pervading both suits: the health concerns of smokers, which defendants attempted to deflect by their related "lights" and "low tar" advertisements. "Low tar" and "lights" findings in the suit by the United States in the District of Columbia provide substantial support for plaintiffs' claims. Those findings, even if not decisive, supply persuasive muster for the case plaintiffs seek to construct.
Fed.R.Evid. 401 advisory committee notes (1972) (citations omitted).
Plaintiffs have chosen a sensible class definition based, perhaps, on prior experience with other "lights" cases, see Part III.E.3.b.i (noting proposed class counsel's previous involvement in such suits), or in anticipation of what a jury may find persuasive. That they could have sought a broader class is no bar to evidence relevant both to the present class and the unchosen more general class. Contrary to
As noted, the fraud and conspiracy alleged here have been the subject of intense litigation in recent years. The court merely limns the allegations here. Appendices A, B, C, and D, infra, contain some of the detailed factual findings from previous litigations.
If plaintiffs' allegations are true, defendants have engaged in a fifty-year still continuing conspiracy to deceive the public about the risks of smoking in order to prevent restrictive governmental regulation and prop up cigarette sales that otherwise would have sagged as smokers began to understand the array of diseases caused by smoking. As part of this conspiracy, defendants reacted to growing consensus in the late 1960s by public health officials that smoking cigarettes causes lung cancer and numerous other diseases by promoting new brands as low in tar. This conspiracy was neatly summarized by the district court in the government's suit against the defendant companies after a nine-month bench trial:
United States v. Philip Morris, at 449 F.Supp.2d at 430-43.
Class actions alleging fraud in the sales and marketing of "light" cigarettes have been brought in a number of state—and occasionally federal—courts in the past several years. See, e.g., FLANAGAN V. ALTRIA GROUP, INC., No. 05-71697, 2005 WL 3719112 (E.D.Mich. April 29, 2005); Watson v. Philip Morris Companies, Inc., No, 03-CV-4661 (Ark.Cir.) (filed April 18, 2003); Virden v. Altria Group, Inc., No. 03-C-64 M (W.Va.Cir. March 28, 2003); Pearson v. Philip Morris, Inc., No. 0211-11819 (Or.Cir.) (filed Nov. 20, 2002); Curtis v. Philip Morris Companies, Inc., No. PI 01-018042 (Minn.Dist.Ct.) (filed Nov. 28, 2001); Craft v. Philip Morris Companies, Inc., No. 002-00406A (Mo. Cir.) (filed Feb. 14, 2000); Marrone v. Philip Morris Cos., No. 99 CIV 0954 (Ohio Ct.Com.Pl.) (filed Nov. 8, 1999); McClure v. Altria Group, Inc., No. 99C148 (Tenn. Cir.Ct.) (filed Jan. 19, 1999); Trombino v. R.J. Reynolds Tobacco Co., No. L-11263-98 (N.J.Super.Ct.) (filed Jan. 19, 1999); Aspinall v. Philip Morris Cos., No. 98-6002, 1998 WL 34190483 (Mass.Sup.Ct. Nov. 25, 1998); Cummis v. Philip Morris Cos., No. L-2114-98 (N.J.Super.Ct.) (filed July 9, 1998); OLIVER V.R.J. REYOLDS TOBACCO CO., No. 268 (Pa.Ct. Com.Pl. Mar. 6, 1998). Results have been mixed.
In several, certification was granted over challenges on the basis of individual causation and reliance. See, e.g., Aspinall v. Philip Morris Companies, Inc., 442 Mass. 381, 392-93, 813 N.E.2d 476 (Mass. 2004) (approving class certification; defendants' common course of conduct predominated over variations in damages; "pragmatically, [a class action] is the only method whereby purchasers of ["light" cigarettes] can seek redress for the alleged deception"); Curtis v. Philip Morris Companies, Inc., No. PI 01-018042, 2004 WL 2776228, at *4 (Minn.Dist.Ct. Nov. 29, 2004) (on reconsideration, granting certification; defendants' deliberately deceptive conduct justified presumption of reliance; as to proof of injury, because "`it may be unlikely that any individual would smoke a cigarette the exact same way twice[,] . . . it is probable that no smoker received the promised benefit of lowered tar and nicotine every time he or
Some of these cases have failed on state law issues irrelevant to the instant suit. See, e.g., Marrone v. Philip Morris USA, Inc., 110 Ohio St.3d 5, 13, 850 N.E.2d 31 (Ohio 2006) (class certification denied; class action only maintainable under state Consumer Sales Practices Act if defendant's alleged violation is "substantially similar to an act that was previously declared to be deceptive"); Price v. Philip Morris, Inc., 219 Ill.2d 182, 196, 265-66, 302 Ill.Dec. 1, 848 N.E.2d 1 (111.2005) (consent orders between FTC and two defendants restricting "use of the words `low,' `lower,' or `reduced' or like qualifying terms" with respect to the amount of tar in its cigarettes "specifically authorize[d] all United States tobacco companies to utilize" such terms, including "light," "so long as the descriptive terms are accompanied by a clear and conspicuous disclosure of the `tar' and nicotine content," barring suit under Illinois state statute protecting defendants against consumer fraud actions based on actions "specifically authorized by law administered by any regulatory body or officer acting under statutory authority of this State or the United States"); Flanagan v. Altria Group, Inc., No. 05-71697, 2005 WL 2769010 (E.D.Mich. Oct. 25, 2005) (same under Michigan Consumer Protection Act).
In every case, the class sought was restricted to smokers of particular brands residing within a particular state. See, e.g., Flanagan (smokers of Cambridge Lights and Marlboro Lights in Michigan); Price (smokers of Cambridge Lights and Marlboro Lights in Illinois); Aspinall (smokers of Marlboro Lights in Massachusetts). Yet as shown in Appendix E, infra, the National Cancer Institute's 2001 monograph on "light" cigarettes ("Monograph 13"), and Appendix F, infra, the Massachusetts Department of Health analysis of increasing nicotine in cigarettes, the alleged frauds and harms were widespread across the industry and the country.
The federal government conducted, at great expense, a civil prosecution under RICO against the defendants named in this suit, who are the dominant members of the tobacco industry. United States v. Philip Morris, No. 99-2496 (filed Sept. 22, 1999). Alleging fraud with regards to all cigarettes sold by the defendants, including the "light" cigarettes at issue in this case, it sought disgorgement of the tobacco companies' profits traceable to cigarette sales to addicted youths between 1971 and 2001—an estimated 289 billion dollars—to repay health expenditures the federal government had paid or would pay to treat tobacco-related illnesses. See United States v. Philip Morris USA, Inc., 396 F.3d 1190, 1193 (D.C.Cir.2005). An interlocutory ruling by the Court of Appeals for the District of Columbia rendered disgorgement
No case has sought, as this one does, a nationwide class to recover economic damages stemming from the alleged "light" cigarette fraud perpetrated by the industry.
The Racketeer Influenced and Corrupt Organizations Act ("RICO") has strong civil as well as criminal implications. It makes it unlawful "for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt" or "to conspire to violate" the Act. 18 U.S.C. §§ 1962(c), 1962(d). RICO defines "racketeering activity" as any act indictable under a list of provisions in title 18 of the United States Code, including sections 1341 and 1343, relating to mail and wire fraud. 18 U.S.C. § 1961(1)(B).
Persons "injured in [their] business or property by reason of a violation of' RICO's criminal provisions may bring a private suit. 18 U.S.C. § 1964(c). If successful, they "shall recover threefold the damages [they] sustain[ ] and the cost of the suit, including a reasonable attorney's fee." Id. This civil suit provision, no less than the rest of the RICO statute, is to be "liberally construed to effectuate its remedial purposes." Pub.L. 91-452, § 904(a), 84 Stat. 947 (1970). See Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 498, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) ("The statute's `remedial purposes' are nowhere more evident than in the provision of a private action for those injured by racketeering activity.").
Dispute over the exact contours of civil RICO is ongoing. Compare United States v. Philip Morris USA, Inc., 396 F.3d 1190, 1197 (D.C.Cir.2005) (disgorgement not a permissible remedy under civil RICO), with United States v. Carson, 52 F.3d 1173, 1182 (2d Cir.1995) (disgorgement permissible but only if calibrated to restrain and prevent future conduct), and Richard v. Hoechst Celanese Chem. Group, Inc., 355 F.3d 345, 354-55 (5th Cir.2003) (following Carson). Compare Ideal Steel Supply Corp. v. Anza, 373 F.3d 251, 262-63 (2d Cir.2004) (reliance by plaintiff or third party on alleged mail or wire fraud is required), rev'd on other grounds, ___ U.S. ___, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006), with Systems Management, Inc. v. Loiselle, 303 F.3d 100, 104 (1st Cir.2002) (reliance not required). No one doubts, however, that the statute relied upon by present plaintiffs provides a
Civil RICO is akin to a Russian matryoshka doll, with statutes nested inside of statutes. It demands that a plaintiff prove injury stemming from a violation of criminal RICO, which in turn requires proof of a pattern of violations of one or more specific state or federal criminal statutes. As the appellate courts have built specific requirements into the substance of the somewhat vague criminal and civil provisions, each layer has become more complex.
All defendants move for summary judgment on issues of causation, injury, damages, and the statute of limitations. If a motion was granted on any one of these grounds, it would be fatal to the suit. For reasons indicated below, summary judgment is denied.
These motions take aim at the aggregate nature of this litigation. The discussion here sounds themes that will be heard again in the discussion of class certification. See Part VII, infra.
To sustain a claim under civil RICO, plaintiffs must first prove that defendants violated RICO's criminal provisions. 18 U.S.C. § 1964, supra. Plaintiffs here allege injury stemming from a pattern of racketeering activity by defendants (in violation of section 1962(c)) and a conspiracy to commit such activity (in violation of section 1962(d)).
1. Conduct of a Racketeering Enterprise (§ 1962(c))
To prove a violation of 1962(c), plaintiffs must demonstrate that defendants conducted or participated in the affairs of an enterprise through a pattern of racketeering activity. Sedima, 473 U.S. at 496, 105 S.Ct. 3275.
a. Enterprise
An enterprise, as defined in the statute, "includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity[.]" 18 U.S.C. § 1961(4). See also First Capital Asset Mgmt., Inc. v. Satinwood, Inc., 385 F.3d 159 (2d Cir.2004) (quoting the statute).
A RICO enterprise is "a group of persons associated together for a common purpose of engaging in a course of conduct," the existence of which is proven "by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit." United States v. Turkette, 452 U.S. 576, 583, 101 S.Ct. 2524, 69 L.Ed.2d 246 (1981). The enterprise must be engaged in, or the activities of the enterprise must affect, interstate or foreign commerce. 18 U.S.C. § 1962. See also First Capital, 385 F.3d at 173 n. 12. Corporations qualify as persons under the act. See 18 U.S.C.
Plaintiffs here allege an association in fact comprised of the named defendant corporations and industry organizations "whereby they coordinated their efforts and conducted their affairs for the past 50 years, with the likelihood of future continuance, in order to achieve the shared goals of preserving and expanding the market for cigarettes and maximizing their profits." Second Amended Complaint ("SAC") ¶ 187.
While denying the accuracy of the factual contentions underlying the claims, defendants do not deny that, if proved, plaintiffs' allegations would demonstrate the existence of an enterprise under the statute.
b. Conduct
A defendant "conduct[s] or participate[s], directly or indirectly, in the conduct of [an] enterprise's affairs," 18 U.S.C. § 1962(c), when it has "some part in directing those affairs." Reves v. Ernst & Young, 507 U.S. 170, 179, 113 S.Ct. 1163, 122 L.Ed.2d 525 (1993). "Of course, the word `participate' makes clear that RICO liability is not limited to those with primary responsibility for the enterprise's affairs, just as the phrase 'directly or indirectly' makes clear that RICO liability is not limited to those with a formal position in the enterprise; but some part in directing the enterprise's affairs is required." First Capital, 385 F.3d at 176 (quoting Reves) (alterations omitted).
"[O]ne is liable under RICO only if he participated in the operation or management of the enterprise itself." Id. (quoting Azrielli v. Cohen Law Offices, 21 F.3d 512, 521 (2d Cir.1994)). See also Reves, 507 U.S. at 179, 113 S.Ct. 1163 (approving this test). "In this Circuit, the `operation or management' test typically has proven to be a relatively low hurdle for plaintiffs to clear, especially at the pleading stage." First Capital, 385 F.3d at 176. Whether a defendant operated or managed the affairs of an enterprise is "essentially [a question] of fact." Id.
With the exception of BATCo, defendants do not contest that, if true, plaintiffs' allegations would adequately demonstrate that, in a legal sense, defendants had operated or managed the alleged enterprise. See Part V.B, infra.
c. Racketeering activity
Racketeering activity is any of a number of violations of state and federal law listed in section 1961(1), including—as alleged in this and many other civil RICO cases— mail and wire fraud in violation of sections 1341 and 1343 of title 18. See 18 U.S.C. § 1961(1) (listing offenses); 18 U.S.C. § 1341 (criminalizing use of the mails to "obtain[ ] money or property by means of false or fraudulent pretenses, representations, or promises"); 18 U.S.C. § 1343 (same by way of "wire, radio, or television communication in interstate . . . commerce"). Instances of racketeering activity are described as "predicate acts." See Sedima, 473 U.S. at 497, 105 S.Ct. 3275.
In relevant part the mail fraud statute reads:
18 U.S.C. § 1341.
In parallel language, the wire fraud provision reads in relevant part:
18 U.S.C. § 1343.
The Court of Appeals for the Second Circuit has recently approved a simple charge defining a fraudulent "plan, device, or course of action" as follows:
United States v. Males, 459 F.3d 154, 157-58 (2d Cir.2006).
Plaintiffs allege that defendants used the mails and interstate communication wires to advertise deceptively, and make misleading public statements about the health risks of, "light" cigarettes, thereby obtaining plaintiffs' money by fraud. There are myriad examples relied upon by plaintiffs of acts violating these statutes. See SAC, App. B (non-exclusive list of predicate acts of mail and wire fraud).
d. Pattern
A civil RICO plaintiff must not only prove that the defendant engaged in acts defined as racketeering in section 1961(1) of title 18, but must also prove that these acts constituted a pattern. To establish such a pattern, a plaintiff must plead and prove at least two section 1961(1) predicate acts, show that the acts are related, and demonstrate that they amount to, or pose a threat of, continuing criminal activity. See 18 U.S.0 A. §§ 1961(1), 1962(c); H.J. Inc. v. Northwestern Bell Tele. Co., 492 U.S. 229, 109 S.Ct. 2893, 106 L.Ed.2d 195 (1989); Economic Opportunity Com'n of Nassau County v. County of Nassau, Inc., 47 F.Supp.2d 353 (E.D.N.Y.1999).
Plaintiffs have pleaded nineteen predicate acts of mail and wire fraud. See SAC, App. B. Defendants do not contest that, for the purposes of summary judgment and certification, the acts are sufficiently related to each other and the alleged common purpose of defendants to constitute a pattern—or that, if proved, they would demonstrate a threat of continuing racketeering activity. They do not raise the judgment and injunction in United States v. Philip Morris, Appendix A, supra, as a bar to a finding that there
2. Conspiracy (§ 1962(d))
The conspiracy required is vanilla flavored. Two or more defendant corporations must have agreed explicitly or by implication to act together and commit two related criminal acts. Defendants argue that this provision requires that plaintiffs prove that each conspirator itself agreed to commit two predicate acts. In the seminal case Salinas v. United States, 522 U.S. 52, 118 S.Ct. 469, 139 L.Ed.2d 352 (1997), the Supreme Court held that the RICO conspiracy statute does not impose such a requirement. Id. at 63, 118 S.Ct. 469. Defendants contend, however, that the Salinas standard is limited to criminal cases. Relying on Cofacredit, S.A. v. Windsor Plumbing Supply Co., 187 F.3d 229, 244-45 (2d Cir.1999), they submit that, in civil cases, the Court of Appeals for the Second Circuit requires that each defendant agree that he would commit two predicate acts himself.
a. Cofacredit
While some language in Cofacredit may lend itself to this interpretation, defendants' contention is rejected for several reasons. First, imposing a stricter standard in civil cases is inconsistent with the broad holding of Salinas that the RICO conspiracy statute did not change wellestablished principles of conspiracy law. See Salinas, 522 U.S. at 63, 118 S.Ct. 469. Second, neither the Supreme Court nor the Second Circuit have distinguished between RICO conspiracy standards for criminal and civil cases. See Cofacredit, 187 F.3d at 244-45. Third, a construction of the standard for civil RICO conspiracy in line with the standard set forth in Salinas is supported by subsequent decisions in the Second Circuit and persuasive authority from other circuits. Finally, plaintiffs allege, and there is ample evidence to support, an agreement to take requisite action by each of the defendants. For purposes of a preliminary ruling on certification or summary judgment, plaintiffs satisfy both the narrow and broad readings of RICO's requirement for an agreement to commit two or more predicate acts.
In Cofacredit, the defendants were sued on multiple theories, including substantive and conspiracy RICO violations, for their involvement in a scheme to obtain financing from the plaintiffs by presenting sham invoices for factoring. Cofacredit, 187 F.3d at 234. The Court of Appeals for the Second Circuit found that there was insufficient evidence that the alleged predicate acts displayed the continuity necessary for a substantive RICO offense, or that the defendants agreed to commit additional predicate acts that, if committed, would have displayed the requisite continuity. Id. at 245.
The court applied a two-prong test in reaching this finding. First, a plaintiff must establish that the defendants "agreed to form and associate themselves with a RICO enterprise and that they agreed to commit two predicate acts in furtherance of a pattern of racketeering activity in connection with the enterprise." Id. at 244 (citing United States v. Sessa, 125 F.3d 68, 71 (2d Cir.1997)). Second, a plaintiff must show that if the agreed-upon predicate acts had been carried out, they would have constituted a pattern of racketeering activity. Id. at 245 (citing Salinas, 522 U.S. at 65, 118 S.Ct. 469).
The case at bar concerns the interpretation of the second clause of the first prong: "they agreed to commit two predicate acts in furtherance of a pattern of racketeering activity." Syntactically, the clause may be understood either as requiring that each
b. Supreme Court precedent
This reading of Cofacredit to ease plaintiffs' burdens accords with the Supreme Court's holding in Salinas v. United States, 522 U.S. at 63, 118 S.Ct. 469, that the RICO conspiracy provision does not require that each defendant agree to commit two predicate acts personally. In Salinas, the defendant challenged his conviction for RICO conspiracy because the jury had not been instructed that he had to have agreed to commit two predicate acts personally. Id. at 61, 118 S.Ct. 469. The Supreme Court rejected that contention on two grounds. First, unlike the general federal conspiracy statute, 18 U.S.C. § 371, which requires that at least one of the conspirators commit an overt act to "effect the object of the conspiracy," section 1962(d) "broadened conspiracy coverage by omitting the requirement of an overt act." Id. at 61, 64, 118 S.Ct. 469. Second, the phrase "to conspire" should be interpreted according to well-established principles of conspiracy law, because section 1962(d) "did not . . . work the radical change of requiring the Government to prove each conspirator agreed that he would be the one to commit two predicate acts." Id. at 64, 118 S.Ct. 469.
Traditionally, conspiracy requires an agreement between two or more persons to commit an offense and an overt act in furtherance of the object of the conspiracy. United States v. Falcone, 311 U.S. 205, 207, 61 S.Ct. 204, 85 L.Ed. 128 (1940). After he has agreed to join the conspiracy, each co-conspirator is liable for the acts of his co-conspirators. See, e.g., Pinkerton v. U.S., 328 U.S. 640, 646-47, 66 S.Ct. 1180, 90 L.Ed. 1489 (1946) ("[S]o long as the partnership in crime continues, the partners act for each other in carrying it forward. It is settled that an overt act of one partner may be the act of all without any new agreement specifically directed to that act."); Bannon v. U.S., 156 U.S. 464, 469, 15 S.Ct. 467, 39 L.Ed. 494 (1895) ("It has always been . . . that, after prima facie evidence of an unlawful combination has been introduced, the act of any one of the co-conspirators in furtherance of such combination may be properly given in evidence against all.").
In accordance with these traditional principles, the Court in Salinas held that the RICO conspiracy provision reaches a conspirator who "intend[s] to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense[. I]t suffices that he adopt the goal of furthering or facilitating the criminal endeavor." Salinas, 522 U.S. at 65, 118 S.Ct. 469. The requirement of two predicate acts for a substantive offense under section 1962(c) "makes no difference" in respect to the coverage of the conspiracy provision. Id. The Court recognized that some circuits may have required that each defendant agree that he would commit two predicate acts because "in some cases the connection the defendant had to the alleged enterprise or to the conspiracy to further it may be tenuous
In light of Salinas, Cofacredit should not be construed to require that each defendant agree that he would commit two predicate acts. Imposing that requirement would substantially depart from the traditional principle of conspiracy that supporters are liable for the acts of the perpetrators so long as they agree to pursue together the same criminal objective. See Salinas, 522 U.S. at 64, 118 S.Ct. 469. Such a departure would be inconsistent with the Supreme Court's understanding that Congress intended to preserve the conventional scope of conspiracy when it enacted the RICO conspiracy provision. Id. at 63, 118 S.Ct. 469.
Defendants contend that the standard set forth in Salinas is limited to criminal cases. This contention is rejected. If defendants' position were correct, Cofacredit would have distinguished its holding from Salinas and other criminal cases. The Court of Appeals for the Second Circuit, however, did not distinguish—but rather explicitly relied on—criminal RICO conspiracy cases to establish the standard for RICO conspiracy. See Cofacredit, 187 F.3d at 244-45 (citing Salinas, 118 S.Ct. at 477, and United States v. Sessa, 125 F.3d 68, 71 (2d Cir.1997)). In turn, the passage from Sessa relied on in Cofacredit quotes from another criminal case, United States v. Benevento, 836 F.2d 60, 73 (2d Cir.1987).
The Supreme Court has not indicated that its holding in Salinas is limited to criminal cases. In Beck v. Prupis, 529 U.S. 494, 120 S.Ct. 1608, 146 L.Ed.2d 561 (2000), a case subsequent to Salinas, the Supreme Court rejected petitioner's suggestion that the court should look to civil, rather than criminal, conspiracy to interpret section 1962(d). Id. at 501 n. 6, 120 S.Ct. 1608. Citing to Salinas, the Court stated that "the common law of criminal conspiracy . . . define[s] what constitutes a violation of § 1962(d)." Id. See also Smith v. Berg, 247 F.3d 532, 539 (3d Cir.2001) ("[Beck's ] reference to Salinas does not in any way repudiate its holding about what constitutes a conspiracy violation or indicate that the violation is different in a civil context. . . . ").
The Supreme Court did look to civil conspiracy law, however, for the "combined meaning" of section 1962(d) and section 1964(c), which provides for a private cause of action. Beck, 529 U.S. at 501 n. 6, 120 S.Ct. 1608. The Court held that an "injury caused by an overt act that is not an act of racketeering or otherwise wrongful under RICO . . . is not sufficient to give rise to a cause of action under § 1964(c) for a violation of § 1962(d)." Id. at 505, 120 S.Ct. 1608. As the Third Circuit has remarked, the decision in Beck "actually limits the class of plaintiffs whose injuries are cognizable; it does not in any way limit the class of defendants who are liable." Smith, 247 F.3d at 539 n. 13. Yet, even assuming the civil conspiracy requirement of an injury caused by an overt act indirectly bears on the standard for conspiracy under section 1962(d), it would still not mandate that each particular conspirator agree that he would commit the wrongful act. See Beck, 529 U.S. at 506-07, 120 S.Ct. 1608 ("[A] plaintiff could, through a § 1964(c) suit for a violation of § 1962(d) sue co-conspirators who might not themselves have violated one of the substantive provisions of § 1962."). As the Court explained, under the common law, once a conspirator commits a tortious act, then the other co-conspirators are jointly liable. Id. at 503, 120 S.Ct. 1608 (conspiracy is a
c. Subsequent decisions of the Second Circuit and district courts
The jurisprudence of the Second Circuit subsequent to Cofacredit also lends no support to defendants' argument. In Baisch v. Gallina, 346 F.3d 366, 376-77 (2d Cir.2003), the defendant contended that he was not a proper defendant in substantive and conspiracy RICO claims because he committed no predicate acts, did not operate or manage the enterprise, and his knowledge of fraud was insufficient to support a RICO conspiracy finding. The court rejected his arguments, and, relying on Salinas, held that "in the civil context, a plaintiff must allege that the defendant knew about and agreed to facilitate the scheme." Id. at 377. Since plaintiff had presented a genuine question as to defendant's knowledge of the racketeering enterprise and his willingness to promote it, summary judgment for defendant was not appropriate. Id.
Recent decisions by district courts in the Second Circuit have not required that a defendant agree to the personal commission of two predicate acts in the civil context. See, e.g., Zito v. Leasecomm Corp., No. 02-CIV-8074, 2004 WL 2211650, at *18 (S.D.N.Y. Sept. 30, 2004) ("Mt is possible to violate § 1962(d) by conspiring with others, even without committing or agreeing to commit any predicate acts oneself."); Davis Lee Pharmacy, Inc. v. Manhattan Cent. Capital Corp., 327 F.Supp.2d 159, 163-64 (E.D.N.Y.2004) ("A plaintiff . . . must prove an agreement by each defendant to commit at least two predicate acts," but "[t]he conspirator need not have agreed to commit the two or more predicate acts himself."). See also State Farm Mutual Auto. Ins. Co. v. CPT Med. Serv., P.C., 375 F.Supp.2d 141, 150-51 (E.D.N.Y. 2005) (holding that plaintiff's allegation that defendants provided "support" in furtherance of a pattern of racketeering activity was sufficient under 1962(d), even if plaintiff did not allege that defendants committed two predicate acts themselves).
d. Other circuits
Persuasive authority from other circuits supports construing the civil standard for a 1962(d) violation analogously to the standard set forth in Salinas. The Seventh Circuit has held that "an individual can be charged under § 1962(d) even if he personally does not agree to commit two predicate acts of racketeering." Slaney v. Int'l Amateur Athletic Fed'n, 244 F.3d 580, 600 (7th Cir.2001) (citing Goren v. New Vision Ina, Inc., 156 F.3d 721, 731 (7th Cir. 1998)). Explaining that the touchstone of 1962(d) liability is an agreement to violate the substantive RICO provisions, rather than an actual violation, the court confirmed that it is enough that "defendant . . . agreed that someone would commit at least two predicate acts to accomplish [the] goals [of the conspiracy]." Id. (emphasis supplied).
The holdings of several circuits on a related issue—whether the reach of the RICO conspiracy statute is limited to those who would have participated in the operation or management of an enterprise—reaffirm the application of Salinas to civil cases. In light of Salinas, the Court of Appeals for the Third Circuit held that a civil defendant may be held liable for conspiracy to violate section 1962(d) if
e. Conclusion on conspiracy requirements
Civil liability under RICO does not require that each conspirator agree to the personal commission of any element of the substantive offense—including the personal commission of two predicate acts.
1. Law
A RICO plaintiff "can only recover to the extent that [] he has been injured in his business or property by the conduct constituting the violation." Sedima, 473 U.S. at 496, 105 S.Ct. 3275.
Id. at 497, 105 S.Ct. 3275.
Money is property under RICO. See Bankers Trust Co. v. Rhoades, 741 F.2d 511 (2d Cir.1984), vacated and remanded on other grounds, 473 U.S. 922, 105 S.Ct. 3550, 87 L.Ed.2d 673 (1985) ("Bankers has alleged that it has been deprived of various sums of money by the defendants' activities. There is no question that this constituted `injur[y] in [its] business or property .'"). As the Supreme Court has held in the antitrust context, "[I]t taxes the ordinary meaning of common terms to argue . . . that a consumer's monetary injury arising directly out of a retail purchase is not comprehended by the natural and usual meaning of the phrase `business or property.'" Reiter v. Sonotone Corp., 442 U.S. 330, 339, 99 S.Ct. 2326, 60 L.Ed.2d 931 (1979). The gloss courts have put on the phrase "business or property" in the antitrust context is more restrictive than that put on the phrase in the RICO context. Compare Sedima (in RICO suit, no requirement of a distinct "RICO injury") with Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977) (in antitrust suit, plaintiffs must plead and prove a distinct "antitrust injury"). A fortiori, if money is property under the antitrust laws, it is property under RICO.
2. Defendants' Motion for Summary Judgment on Injury
The challenge to plaintiffs' claim of injury overlaps with defendants' motion to dismiss
a. Proprietary injury
Defendants contend that plaintiffs have not suffered an injury to their business or property because "light" cigarettes have always cost the same as regular cigarettes, and many, if not all, of the class members would have continued to smoke in the absence of the alleged fraud. These contentions may persuade a jury, but cannot decide the motion for summary judgment.
Defendants rest their challenge on one in-circuit and three out-of-circuit cases. Each, they avow, stands for the proposition that a defrauded plaintiff cannot show injury under RICO if the object he or she received was worth what he or she paid for it. None bars plaintiffs' claims.
In Commercial Union Assurance Co. v. Milken, 17 F.3d 608 (2d Cir.1994), the Court of Appeals for the Second Circuit held that plaintiff investors who initially suffered losses stemming from the criminal conduct of Michael Milken and others could not maintain an action under RICO after the full amount of their original investment had been returned to them. 17 F.3d at 611 (noting that appellants had received "114.6 percent of their initial capital investment and they still own their partnership interests"). Because plaintiffs had "received the return actually bargained for, they had suffered no compensable RICO injury." First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 769 (2d Cir.1994) (describing the holding in Milken). Smoker plaintiffs' claim here, to the contrary, is that they did not receive what they bargained for—i.e., a safer cigarette. Milken is inapplicable.
In Heinold v. Perlstein, 651 F.Supp. 1410 (E.D.Pa.1987), the court dismissed for lack of injury a suit seeking recovery for a lost "bargain opportunity" due to a retailer's representation that a ring was more valuable than it was. See 651 F.Supp. at 1411. Critically, the plaintiff conceded that the ring was, in fact, worth more than he had paid. Id. The plaintiff sought to recover his expectancy damages, which he defined as the difference between the value that the defendant represented the ring to have and the actual value of the ring. Id. The court rejected the plaintiffs position since the only property to which the plaintiff alleged an injury was his expectation interest. "Since plaintiff admits that he either broke even or came out ahead on the deal, albeit not as far ahead as he had hoped, I fail to see what property injury he sustained." Id. Heinold is easily distinguishable from the case at hand. Here, plaintiffs allege that they paid more than the fair market value of the cigarettes they purchased. It is not only the expectation of a benefit that is the source of plaintiffs' claim, but an actual loss of money: had the truth about "light" cigarettes been revealed earlier, they contend, the market value of these cigarettes would have been lower than the amount they paid. See Expert Reports of Dr. Jeffery Harris, Part VIII.F.1.h (under one of plaintiffs' damage models, "an economist assesses, on a percigarette basis, the difference between the price paid for the good as represented and the value of the good actually sold"); Dr. John Beyer, Part VIII.F.1.a (another model, using multiple regression, "identifies the extent to which prices of cigarettes were higher as a result of the alleged fraudulent behavior.").
Similarly inapt is Line v. Astro Manufacturing, 993 F.Supp. 1033 (E.D.Ky.1998). In Line, a putative class of owners of manufactured homes sued the builders to recover for diminution of property value
A third case relied on by defendants, Frankford Trust Co. v. Advest, Inc., 943 F.Supp. 531 (E.D.Pa.1996), is also wide of the mark. Frankford Trust found Heinhold ' s limitations—no recovery for harm to an expectation interest—inapplicable in a suit alleging mismanagement of funds and seeking profits that would have been earned had defendants invested wisely. See 943 F.Supp. at 535 ("Heinold is easily distinguishable from the case at hand."). The district court's holding in Frankford Trust that lost profits could be an injury under RICO does not preclude present plaintiffs' claim that they paid more than the fair market value for "light" cigarettes.
That "light" cigarettes did and do cost the same as regular cigarettes may not prevent a finding that plaintiffs paid more than fair market value. Plaintiffs contend that implicit in defendants' marketing was a trade-off between taste and safety. Smokers who chose "light" cigarettes, they claim, understood that flavor would be sacrificed for decreased health risks. See, e.g., Brown & Williamson, "Low `Tar' Satisfaction, Step 1, Identification of Perceived and Underperceived Consumer Needs," July 25, 1977, Bates No. 775036043-44 ("It must be assumed that Full Taste smokers come down to `low tar' expecting less taste . . . they are willing to compromise taste expectations for health reassurance."); "Low Tar Brand Market Overview and Lights Review," Nov. 1994, Bates No. 403695152 ("Lights as a descriptor has distinct perception of relating to an expectation of low tar/nicotine delivery with an additional secondary expectation of reduced taste."). Under this view, a "light" cigarette that did not provide any decreased health risk would be worth less than a regular cigarette, even if both were priced the same, because of deficiencies in the latter's taste. Defendants counter that most "light" smokers claim to prefer the taste of "light" cigarettes—suggesting that health risks do not play a major role in the choice to start or continue smoking "lights." Under this view, a smoker who preferred the taste of "light" cigarettes would have no injury even if he or she received no less tar or nicotine than he or she would have from a regular cigarette. But see Expert Report of Marvin Goldberg, pp. 9-14, excerpted in Part VIII. Fig (arguing that defendants' marketing of "light" cigarettes shaped consumer perceptions of taste); Price, Appendix C at ¶ 41, infra (finding that some smokers' stated preference for the taste of "light" cigarettes "was actually an additional health reassurance reinforcement"). These intricate questions of implicit promises and subjective value are in the jury's bailiwick.
Damage models submitted to the jury will be vetted to conform to the evidence and any jury finding on injury. For example, if the jury were to find that "light" cigarettes were worth what plaintiffs paid, then only damages stemming from sales to those who would have quit, or would have smoked fewer cigarettes but for the fraud, will be permitted. See Part III.D.3.a (discussing basis for computation of out of
b. Personal injury
Defendants urge that plaintiffs are improperly seeking compensation for increased risk of future personal injury under the cover of economic harm. Plaintiffs respond that the damages they seek are the most direct form of damage envisioned under RICO—money that was taken from them by fraud.
It is not clear that personal injury damages are not recoverable under RICO. See Nat'l Asbestos Workers Med. Fund v. Philip Morris, Inc., 74 F.Supp.2d 221, 229 (E.D.N.Y.1999) ("The most natural reading of the language in RICO supports the conclusion that pecuniary losses resulting from racketeering and causing personal injuries should be compensable under the statute."); Guerrero v. Gates, 110 F.Supp.2d 1287, 1293 (C.D.Cal.2000) (permitting recovery for personal injuries caused by police misconduct; collecting cases). See also Hargraves v. Capital City Mortg. Corp., 140 F.Supp.2d 7, 26 (D.D.C. 2000) (citing National Asbestos Workers Medical Fund) (denying motion to dismiss claims seeking damages for emotional or physical injuries). But see Berg v. First State Ins. Co., 915 F.2d 460, 464 (9th Cir. 1990) (personal injuries not compensable under RICO); Rylewicz v. Beaton Services, Ltd., 888 F.2d 1175 (7th Cir.1989) (same).
The Court of Appeals for the Second Circuit has yet to rule on the matter. A prohibition on recovery for personal injuries would not be consonant with the statutory language ("The provisions of this title shall be liberally construed to effectuate its remedial purposes." Pub.L. 91-452, § 904(a), 84 Stat. 947.), or the Supreme Court's admonition that "RICO is to be read broadly." Sedima, 473 U.S. at 497, 105 S.Ct. 3275. In any event, plaintiffs here do not seek damages for personal injuries, either directly or indirectly.
Plaintiffs' proposed jury instructions would make this distinction clear. "Damages that are recoverable include, for example, the payment of money, unjust profits, and overcharges. They do not include, for example, claims for personal injury or mental anguish." Pls.' Prop. Jury Inst. 6.
Relying on a footnote from In re Bridgestone/Firestone, Inc. Tires Products Liability Litigation, defendants also argue that permitting the instant suit to go forward without barring all future suits for personal injury would result in double recovery and double liability. See 288 F.3d 1012, 1017 n. 1 (7th Cir.2002) (rejecting certification of nationwide class of consumers seeking damages for reduced value of defective tires). The learned footnote dealing with defects in widgets is of no help in the present case. Bridgestone turned on choice-of-law analysis, not double recovery. See id. at 1018 (concluding that the applicable state rule of lex loci delicti would require utilization of many different state substantive laws, rendering the case unmanageable on a national class action basis). Jurors may take a different view of choices by consumers of cigarettes looking for protection from cancer than they do of choices by purchasers of nonlethal widgets. Cf. Joe Nocera, "If It's Good for Philip Morris, Can It Also Be Good for Public Health?", N.Y. Times Magazine, June 18, 2006 (quoting Steve Parrish, Altria's senior vice president for corporate affairs: "We don't make widgets."). No language in RICO evidences concern with the possibility that its rule of recovery might lead to "excess precautions"—a phrase itself somewhat out of place in a suit alleging deliberate, longterm deception about serious public and private health concerns.
3. Conclusion on Injury
Plaintiffs' theory of injury is legally unobjectionable. It is supported by evidence sufficient to withstand summary judgment.
1. Law
To recover under civil RICO, a plaintiff must establish an injury to his business or property "by reason of the alleged racketeering activity. See Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985) ("[A] plaintiff . . . can only recover to the extent that[ he has been injured in his business or property by the conduct constituting the violation."); Bankers Trust Co. v. Rhoades, 741 F.2d 511, 516 (2d Cir.1984), vacated and remanded on other grounds, 473 U.S. 922, 105 S.Ct. 3550, 87 L.Ed.2d 673 (1985), on remand, 859 F.2d 1096 (2d Cir.1988) ("the requirement that the injury be `by reason of a violation of § 1962 means that there must be a causal connection between the prohibited conduct and the plaintiffs proprietary injury. Thus, it is insufficient for a plaintiff to prove simply a violation by the defendants and a proprietary injury; it must prove that the defendant's violation caused the injury."); Douglas E. Abrams, The Law of Civil RICO § 3.3.1 (1991) ("[S]ection 1964(c)'s `by reason of language requires proof that the violation caused the plaintiffs proprietary injury.").
The "by reason of language requires both factual, "but for," causation and "proximate" causation. See Commercial Cleaning Servs., L.L.C. v. Colin Serv. Sys., Inc., 271 F.3d 374, 380 (2d Cir.2001) ("RICO's use of the clause `by reason of' has been held to limit standing to those plaintiffs who allege that the asserted RICO violation was the legal, or proximate, cause of their injury, as well as a logical, or `but for,' cause.").
a. Factual causation
Factual causation is a requirement of every tort. See generally Dan B. Dobbs, The Law of Torts § 166 (cause in fact requirement). It is commonsensical: if a defendant's action cannot be linked to a harm suffered by plaintiff, he cannot be held liable for it.
b. Proximate causation
The term "proximate causation" is used "to label generically the judicial tools used to limit a person's responsibility for the consequences of that person's own acts." Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 268, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992). As it has with identical language in the Clayton Act, see Associated Gen. Contractors of California, Inc. v. California State Council of Carpenters, 459 U.S. 519, 535-6, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983), the Supreme Court has read a proximate cause requirement into civil RICO. See Holmes, 503 U.S. at 268, 112 S.Ct. 1311 ("We may fairly credit the 91st Congress, which enacted RICO, with knowing the interpretation federal courts had given the words earlier Congresses had used first in § 7 of the Sherman Act, and later in the Clayton Act's § 4. It used the same words, and we can only assume it intended them to have the same meaning that courts had already given them. Proximate cause is thus re
Though proximate cause had taken many forms at common law, the issue in Holmes was "a demand for some direct relation between the injury asserted and the injurious conduct alleged." Id. Little weight was to be put on the Court's terminology. "[O]ur use of the term `direct' should merely be understood as a reference to the proximate-cause enquiry that is informed by the concerns set out in the text. We do not necessarily use it in the same sense as courts before us have and intimate no opinion on results they reached." Id. at 274 n. 20, 112 S.Ct. 1311.
The Court in Holmes did not attempt to set out a definitive test for proximate cause. "[T]he infinite variety of claims that may arise make it virtually impossible to announce a black-letter rule that will dictate the result in every case." Id. at 274 n. 20, 112 S.Ct. 1311 (quoting Associated General Contractors, 459 U.S. at 536, 103 S.Ct. 897). See also Nat'l Asbestos Workers Med. Fund v. Philip Morris, Inc., 74 F.Supp.2d 221, 223 (E.D.N.Y.1999) ("[P]roximate causation is a normative, flexible, and highly fact specific doctrine which requires individualized inquiry in each case."); W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 42 (5th ed.1984) (proximate cause is "always to be determined on the facts of each case upon mixed considerations of logic, common sense, justice, policy and precedent{ ]"). See also Anza v. Ideal Steel Supply Corp., ___ U.S. ___, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006) (applying Holmes as current law).
The Court of Appeals for the Second Circuit has read Holmes to imply that the common law torts principles of direct injury, substantial causation, reasonable foreseeability, and the "zone of interests" are "distinct concepts, [each] of which must generally be established by a plaintiff." Laborers Local 17 Health and Benefit Fund v. Philip Morris, Inc., 191 F.3d 229, 235-36 (2d Cir.1999). See also id. at 238-39 (holding plaintiff health fund's suit barred because its financial losses were wholly derivative of injuries to individual smokers; "the critical question posed . . . is whether the damages a plaintiff sustains are derivative of an injury to a third party.").
c. Reliance
i. Reliance is required
When, as here, mail fraud and wire fraud are the alleged predicate acts forming the racketeering activity, justified reliance on the fraud is necessary to satisfy RICO's causation requirements. See Metromedia Co. v. Fugazy, 983 F.2d 350, 368 (2d Cir.1992) ("[T]o establish the required causal connection, the plaintiff [must] . . . demonstrate that the defendant's misrepresentations were relied on."). See also, e.g., Appletree Square I Ltd. v. W.R. Grace & Co., 29 F.3d 1283, 1286 (8th. Cir.1994) ("In order to establish injury to business or property `by reason of' a predicate act of mail or wire fraud, a plaintiff must establish detrimental reliance on the alleged fraudulent acts."); Grantham and Mann, Inc. v. Am. Safety Prods., 831 F.2d 596, 606 (6th Cir.1987) (failure to establish detrimental reliance); In re Sumitomo Copper Litig., 995 F.Supp. 451, 458 (S.D.N.Y.1998) ("When the predicate acts [of mail or wire] fraud are alleged, `to establish the required causal
ii. Role of reliance
The Court of Appeals for the Second Circuit has not always stated explicitly, when discussing reliance, what purpose it serves. A fair reading of the cases demonstrates that whether reliance, in itself, satisfies both factual and proximate causation depends on whether the reliance is direct or third-party.
(a) Direct reliance
In cases deriving from predicate acts of mail or wire fraud, plaintiffs may establish reliance sufficient to satisfy RICO's "by reason of" language in one of two ways. First, a plaintiff may "claim that he was the direct target of the fraudulent scheme. In that case, to plead causation, [the] plaintiff would have to allege that he himself relied on the underlying misrepresentations to his detriment." Sterling Interiors Group, Inc. v. Haworth, Inc., No. 94-9216, 1996 WL 537482, at *4 (S.D.N.Y. Sept. 23, 1996). Proof of injury by the intended victim of a scheme is a prototypical example of proximate cause. See, e.g., Restatement (Second) of Torts § 525 (1977) ("One who fraudulently makes a misrepresentation of fact, opinion, intention or law for the purpose of inducing another to act or to refrain from action in reliance upon it, is subject to liability to the other in deceit for pecuniary loss caused to him by his justifiable reliance upon the misrepresentation."). Direct reliance satisfies proximate causation.
(b) Third-party reliance
As a second possibility, a plaintiff may allege that his injuries were caused by a third party's reliance on fraudulent scheme. See, e.g., County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295, 1300, 1311 (2d Cir.1990) (permitting plaintiff county and utility ratepayers to sue on theory that defendant utility had testified falsely before the state Public Service Commission, which granted the utility the right to increase rates in reliance on the false testimony). Proof of third-party reliance will not always satisfy RICO's requirement of proximate causation. See 2 Civil RICO Litigation § 8.04[B][1][a] ("[I]f the defendant's misrepresentations cause a third party to take actions causing plaintiffs injury, the factual causation link is satisfied. Whether such injury should nevertheless be deemed too remote to permit recovery under [civil RICO] is a matter of proximate causation analysis, not causation-in-fact."). cf. Anza v. Ideal Steel Supply Corp., ___ U.S. ___, 126 S.Ct. 1991, 164 L.Ed.2d 720 (2006) (proximate cause not met where government agency, not plaintiff, relied on defendant's alleged mail and wire fraud).
d. Transaction causation and loss causation
The Court of Appeals for the Second Circuit has, in the context of RICO suits alleging fraud in commercial finance transactions, said that plaintiffs must show "transaction causation" and "loss causation." See, e.g., Moore v. PaineWebber, 189 F.3d 165 (2d Cir.1999) (plaintiffs alleged that financial service company misrepresented
The doctrines are inapplicable. Transaction causation would require plaintiffs to demonstrate that, "but for the defendant[s] wrongful acts, the plaintiffs would not have entered into the transactions that resulted in their losses." Moore, 189 F.3d at 172. Loss causation would require that plaintiffs show "that the defendants' misstatements or omissions were the reason the transactions turned out to be losing ones." Id. Transaction causation is similar to the factual causation inquiry under reliance, discussed above. Loss causation, in the consumer fraud context, would be nonsensical. If, as defendants aver, plaintiffs here were required to show that the misstatements or omissions "actually caused their economic loss," see Tr. of Sept. 13, 2006 Hr'g, at 123:20, they would have to demonstrate that defendants' alleged misrepresentations about "light" cigarettes made those cigarettes worth less than plaintiffs paid— i.e., made those purchases "losing ones." But the allegation is not that defendants' fraud itself decreased the value of "light" cigarettes. It is that defendants manufactured an inferior product (because it tasted worse than regular cigarettes and was no safer) and disguised its worth with misleading statements about its reduction of health risks. As with every consumer fraud, it is not the misrepresentation that makes the product worth less than defendant claims. It is the facts behind the lies.
Application of the "transaction causation"-"loss causation" duo would bar all consumer fraud claims under RICO. The law does not so radically reduce consumer protections because of its rules for an entirely different kind of case, one dealing with commercial finance.
2. Defendants' Motion for Summary Judgment on Causation
Defendants move for summary judgment on causation grounds. They claim that 1) plaintiffs have made an insufficient showing of reliance and 2) the indirect purchaser rule bars their claims.
a. Reliance
The challenge on grounds of insufficient showing of reliance is twofold. It is a challenge, first, to plaintiffs' experts' reports and, second, to the use of aggregate proof on what defendants claim is a set of "individualized" questions. Because the court finds the reports and testimony of plaintiffs' pertinent experts admissible, see Part VIII, infra, and the use of statistical proof appropriate, see Parts VII.D.1.a.ii, VII.D.2.b.i, and IX.A, infra, defendants' remonstration is unfounded.
i. Plaintiffs' claims of reliance
Plaintiffs allege reliance on the "lights" descriptor appearing on each pack of "light" cigarettes, as well as the sophisticated marketing campaigns of defendants. See SAC 1172 ("In furtherance of their fraud and deception, Defendants added the labels "Light" and/or "Lights" to their regular
ii. Reliance showing required in this case
Though reliance is a requirement for establishing causation where predicate acts based in fraud are alleged, the nature of the reliance is not a constant. Where the fraudulent scheme is limited in scope and specifically targeted at only one or a few individuals, organizations, or entities, the establishment of causation may require reliance on identifiable misrepresentations. See, e.g., County of Suffolk, 907 F.2d at 1311 ("In the context of this case, which involves RICO mail fraud claims . . . it is necessary for Suffolk to demonstrate at trial that LILCO's misrepresentations to the PSC were relied upon by the PSC.") (emphasis supplied). See also Metromedia, 983 F.2d at 357 (misrepresentations sent by mail directly to targeted victim). Where, however, the fraudulent scheme is targeted broadly at a large proportion of the American public the requisite showing of reliance is less demanding. Such sophisticated, broad-based fraudulent schemes by their very nature are likely to be designed to distort the entire body of public knowledge rather than to individually mislead millions of people. From the perspective of the fraudulent actors, clear efficiencies are gained by co-opting the media and other outlets of information as unwitting tools for such a pervasive scheme.
If plaintiffs' allegations are borne out, it was crucial to the success of defendants' scheme—particularly the public's willingness to accept the misrepresentations as truths—that the health claims about "light" cigarettes appear to come not only from the defendants themselves, but also to appear as facts, or at least open questions, permeating the entire body of public knowledge. Cf., e.g., Simon II, Appendix D, at Part III.B.4, infra (it was tobacco industry policy that "reports were to be withheld from the United States Surgeon General" if they implicated cigarettes in causing disease). To require reliance on specific misrepresentations where the concealed and obscured use of indirect channels of communication was integral to the success of the scheme would produce the perverse result of having the most massive and sinister fraudulent schemes be the ones that escape civil RICO liability.
Where such a broad-based fraudulent scheme is alleged, a plaintiff in order to establish reliance for injury causation need only establish (1) that the RICO defendants intentionally engaged in a scheme to distort the body of public knowledge, (2) that the defendants were successful in doing so (i.e., were, a sub
iii. Plaintiffs have demonstrated reli
Plaintiffs have met the five Falise requirements:
(1) Documents submitted by plaintiffs in this case, experience with like tobacco litigation, the recent opinion after bench trial in United States v. Philip Morris (Appendix A, supra), the findings of the jury in Blue Cross (Appendix B, supra), the trial in Illinois state court (Appendix C, infra), and the expert reports of Joseph Stiglitz, Robert Pollay, Richard Proctor, and others provide ample evidence of a scheme by defendants to mislead each potential smoker of "light" cigarettes, and the public generally, about the health risks of "light" cigarettes.
(2) While defendants raise FTC and public health community "approval" as defenses, see Parts VI.A, VI.C, infra, their advertisements and marketing efforts were and are the primary source of information for smokers about defendants' products. See United States v. Philip Morris, Appendix A at 449 F.Supp.2d at 513-61, supra (detailing marketing efforts). The expert reports of Katherine Kinsella, Marvin Goldberg, Robert Pollay, and others provide evidence on which a rational jury could conclude that defendants' representations were a substantial factor causing plaintiffs' misapprehensions.
(3) Plaintiffs' experts Robert Proctor, K. Michael Cummings, Joel Cohen, and Michael Dennis, among others, provide evidence that "lights" smokers, the class of alleged victims, relied on defendants' misrepresentations, and that they did not receive what was represented—less tar and nicotine or, more generally, a less dangerous cigarette.
Defendants' attack on plaintiffs' failure to produce a single, determinate "reliance number"—the percentage of plaintiffs who relied on defendants', as opposed to any other party's, representations—misconceives the allegations in the case. The survey of plaintiffs' expert John Hauser attempts to fix—within acceptable limits— the percentage of "light" smokers for whom health was a significant contributing factor to the decision to smoke "light" cigarettes. See Part VIII.F.1.i, infra (finding the survey and Dr. Hauser's opinions based upon it admissible). He concludes, based on his survey, that 90.1 percent of "light" smokers chose their cigarettes based on the desire to reduce health risks.
"Light" cigarettes are an invention of defendants. The true "reliance number" might be expected to closely approximate Dr. Hauser's number, unless there were other sources of information about "light" cigarettes. There is substantial evidence that, beginning in 1971, defendants marketed their "light" brands aggressively— with advertising expenditures out of proportion to their market share—in order to capitalize on anticipated smoker concerns about health. See Expert Report of Marvin Goldberg, Part VIII.F.1.g, infra. Defendants' representations were thus the primary, (and for many years, the only) source of information about "light" cigarettes. Accord United States v. Philip Morris, Appendix A at 449 F.Supp.2d at 898-99, supra.
(4) Reliance by many, if not all, of the plaintiffs was reasonable in the totality of the circumstances, particularly given the lack of sophistication on such health matters of many, if not most, smokers, combined with the allegedly voluminous distortions and omissions by defendants concerning the dangers of "light" cigarettes.
Plaintiffs' experts Jeffery Harris, John Beyer, and John Hauser, among others, present admissible reports that provide a basis for a jury determination that plaintiffs suffered compensable economic harms as a result of defendants' alleged fraud. See Part VIII.F.1, infra.
(5) Compared to previous RICO cases supervised by this and other courts, the proximate cause inquiry here is not complex. It does not involve a medical provider suing in subrogation to recover costs incurred as a consequence of medical injuries suffered by smokers because of defendants' fraudulent conduct, cf. Blue Cross/ Blue Shield of New Jersey, 344 F.3d at 218 (overturning jury verdict because plaintiff insurer failed to identify individualized subrogor claims); a trust fund suing to recover monies expended on medical services for smokers misled by tobacco cornpanies about the addictiveness and health risks of cigarettes, cf. Laborers Local 17 Health and Benefit Fund v. Philip Morris, Inc., 191 F.3d 229, 239 (2d Cir.1999) (dismissing complaint because plaintiff trust fund's injuries were "entirely derivative" of union smokers'); or workers or entrepreneurs harmed by a business that hired a large number of undocumented immigrants and paid them poorly—depressing local wages or permitting the business to underbid competitors on public contracts. See, e.g., Williams v. Mohawk Indus., Inc., 411 F.3d 1252, 1261 (11th Cir.2005) (wages); Trollinger v. Tyson Foods, Inc., 370 F.3d 602, 618-9 (6th Cir. 2004) (same); Mendoza v. Zirkle Fruit Co., 301 F.3d 1163, 1170-1 (9th Cir.2002) (same); Commercial Cleaning Servs., L.L.C. v. Colin Serv. Sys., Inc., 271 F.3d 374, 381-5 (2d Cir.2001) (bidding).
Plaintiffs here allege a simple and short chain of causation: defendants represented that "light" cigarettes provided health benefits that they knew these cigarettes did not provide; plaintiffs believed the misrepresentation and so continued to buy "light" cigarettes in larger numbers than they would have absent the fraud; this kept demand for "light" cigarettes at a much higher level than it otherwise would have been; elevated demand allowed defendants to keep prices higher than they otherwise would have; and plaintiffs paid more for "light" cigarettes than they otherwise would have.
Defendants' reliance upon Ideal Steel Supply Corp. v. Anza is ill-placed. The plaintiff in Anza alleged harm to his business by reason of a competitor's fraudulent submission of false tax claims to state authorities. 126 S.Ct. at 1995. By failing to pay the sums due the state, he alleged, his competitor was able to lower his prices and so attract more customers. Id. at 1997. Two discontinuities plagued the suit.
Plaintiffs here, by contrast, were both the direct target of the fraud and the party injured. Documentary evidence discussed in some detail at Part VIII, infra, strongly suggests that the fraudulent "health reassurance" campaign was the central and predominating reason for plaintiffs' choice. Relatively straightforward surveys of consumers are possible—and conducted often by these very defendants—to determine what motivated the choice of "light" cigarettes that would be infeasible in the complex, multifactor business and investment environment. Cf. Holmes at 272-273, 112 S.Ct. 1311 ("If the nonpurchasing customers were allowed to sue, the district court would first need to determine the extent to which their inability to collect from the broker-dealers was the result of the alleged conspiracy to manipulate, as opposed to, say, the broker-dealers' poor business practices or their failures to anticipate developments in the financial markets.").
As explained by Justice Breyer in his concurrence in part and dissent in part, it was the competitive and antitrust implications of Anza's complaint that mandated a finding of no proximate cause:
Anza, 126 S.Ct. at 2010. Proximate cause boundaries on but-for cause are based on policy decisions designed to prevent undue inhibition of activities society encourages— in Anza, competition. No public policy supports drawing the proximate cause limitation to preclude these plaintiffs' suit. They were the persons targeted; they expended their own funds; and they were allegedly damaged by getting less than they paid for, satisfying direct, proximate cause requirements.
Anza does not appear to shrink the class of plaintiffs who may sue under the principles set forth in Holmes, described supra. See 126 S.Ct. at 1995 ("Our analysis begins—and, as will become evident, largely ends—with Holmes.").
b. Indirect purchaser rule
Defendants do not appear to seriously contend that they had no direct duty to plaintiff smokers, or that they did not have a duty to smokers not to make fraudulent representations regarding the safety of their cigarettes. Nevertheless, they continue to rely upon the non-applicable indirect purchaser rule.
Defendants contend that the Illinois Brick doctrine bars plaintiffs' claims because plaintiffs seek to recover a portion of the price they allegedly overpaid, and yet they have not bought "light" cigarettes directly from the defendants. Rather, plaintiffs bought from retailers, who bought from wholesalers, who bought from defendants. The gist of defendants' argument is that any injury plaintiffs have suffered is derivative of injury inflicted, in the first instance, upon the wholesalers. In the context of this litigation, the suggestion that the cause of action belongs to the intermediate chain of purchasers in bulk— the wholesaler, the large supermarket corporations, or even the corner grocer— rather than the to the smoker-purchaser to whom defendants' advertising is pitched verges on the bizarre. "`If the law supposes that,' said Mr. Bumble, the law is a ass, a idiot.'" Charles Dickens, Oliver Twist, in Familiar Quotations 669b (John Bartlett, ed., 14th ed.1968). But it is not such a bumbler.
Plaintiffs do not contest that they are indirect purchasers within this crabbed definition preferred by defendants. Their submission is that the Illinois Brick doctrine does not bar their claims because they are the direct victims and targets of defendants' fraud. First, they point out that the case law does not mandate application of the Illinois Brick doctrine in the context of a mail and wire fraud case where the purchasers are the direct victims or intended targets of fraud. Second, they contend that the policy rationale underlying the Illinois Brick doctrine—to streamline enforcement by granting full recovery only to the direct victim—does not support divesting direct victims and targets of fraud from a cause of action. Plaintiffs argue that because defendants' fraud was designed to inflate the ultimate purchasers' demand for "light" cigarettes, they are the ones with the "requisite proximity to injury."
The notion of separating the concept of direct victim with that of intended target is not without some basis. Cf. Associated Gen. Contractors, Inc. v. California State Council of Carpenters, 459 U.S. 519, 537, 540, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) (treating the specific intent of antitrust conspirators to target plaintiffs separately from the directness or indirectness of plaintiffs' injury, which relates to the chain of causation between the injury and the unlawful conduct). Although courts have used the term "direct" with some latitude, under Second Circuit precedent, an injury is direct where plaintiffs harm arises from defendant's misrepresentations to the plaintiff and not from an injury to a third party. See Laborers Local 17 Health and Benefit Fund v. Philip Morris, Inc., 191 F.3d 229, 237-39 (2d Cir.1999) (collecting cases).
Analysis requires considering plaintiffs' contention that they are both the direct victims and the intended targets of defendants' fraud. Illinois Brick doctrine does not bar plaintiffs' claims under either theory. The cases relied on by defendants do not involve indirect purchasers who are direct victims or intended targets of fraud. Barring plaintiffs' claims would negate the long-standing principle underlying the Illinois Brick doctrine that the victim who is
i. Illinois Brick
The Illinois Brick doctrine originated in the context of antitrust law. In Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968), the Supreme Court rejected an antitrust defendant's claim that the plaintiff buyer did not suffer a cognizable injury because it passed on the illegal overcharges to his customers. In that case, a shoe manufacturer sued a manufacturer and distributor of shoe machinery on the theory that the defendant monopolized the shoe industry through its practice of leasing shoe equipment, instead of selling it. Id. at 483-84, 88 S.Ct. 2224. Plaintiff sought to recover the difference between the price of rentals and the amount he would have paid, had defendant been willing to sell the shoe machinery. Id. The Supreme Court held that so long as the seller continued to charge the illegal price, the buyer was not barred from recovery even if he had recouped the overcharge by charging higher prices to his customers. Id. at 489, 88 S.Ct. 2224.
The Court's first concern was that allowing defendant to assert that plaintiff passed on the overcharges would make it virtually impossible to ascertain how much of the overcharge was passed every time the goods changed hands. Id. at 492-93, 88 S.Ct. 2224. Second, allowing the passon defense would reduce the effectiveness of treble-damages actions because the buyers of single pairs of shoes would have too tiny a stake to sue, and antitrust violators would retain the fruits of their illegality. Id. at 494, 88 S.Ct. 2224.
Illinois Brick involved a situation obverse to Hanover Shoe. The state of Illinois and local government agencies sued producers of concrete blocks for conspiring to fix prices and alleged that intermediary contractors passed on the overcharge to the government. Illinois Brick Co., 431 U.S. at 735, 97 S.Ct. 2061. The government agencies did not buy the bricks directly from the producers; rather, the producers sold to masonry contractors, who submitted bids to general contractors, who, in turn, submitted bids to the government agencies. Id. at 726, 97 S.Ct. 2061. The Supreme Court held that the counties were barred from suing, because giving indirect purchasers standing to sue was inconsistent with the rule of Hanover Shoe. Id. at 728-29, 97 S.Ct. 2061. Precluding defendant from asserting that a direct purchaser passed on an alleged overcharge to indirect purchasers, while allowing an indirect purchaser to recover from the defendant would result in multiple liability for the defendant. Id. at 730, 97 S.Ct. 2061. Rather than allowing every potentially affected party to sue only for the portion it absorbed, concentrating full recovery in the hands of the direct purchaser would better ensure that violators would not retain the fruits of their illegality. Id. at 735, 97 S.Ct. 2061.
The Second Circuit has applied the Illinois Brick doctrine in the context of proximate causation in a RICO case. See Sperber, 849 F.2d at 65 (holding that investors' injuries were not proximately caused by defendant's acts of insider trading and analogizing the investors to consumers who merely pay higher prices to an intimidated storekeeper). Other circuits have applied the twin holdings of Hanover Shoe and Illinois Brick to bar both plaintiffs and defendants from asserting the "passon" argument in the context of RICO actions for treble damages. Compare McCarthy v. Recordex Serv., Inc., 80 F.3d 842 (3d Cir.1996) (barring suit by indirect purchasers of copies of medical records),
ii. Inapplicability of Illinois Brick Rule
The underlying rationales of Illinois Brick doctrine do not support barring plaintiffs' claims. The Supreme Court's concern in Illinois Brick that defendants would be exposed to multiple liability if indirect purchasers are allowed to sue is remote or non-existent in the case before the court. Under defendants' interpretation of the Illinois Brick doctrine, only the wholesalers would have standing to sue, since they are the ones who bought directly from the defendants. It is questionable, however, whether the wholesalers would have standing to recover, if, as plaintiffs allege, defendants' fraudulent scheme was designed to induce smokers, and not the wholesalers, into buying more "light" cigarettes. Cf. Abrahams v. Young & Rubicam Inc., 79 F.3d 234, 238 (2d Cir.1996) (foreign tourist official who alleged injury to his reputation and business from defendants' scheme to bribe him, which was unbeknownst to him, failed to establish a RICO claim because he was not the target of the enterprise and his injuries did not flow from the harms the predicate acts were intended to cause); Byrne v. Nezhat, M.D., 261 F.3d 1075, 1111-12 (11th Cir. 2001) ("when the alleged predicate act is mail fraud, the plaintiff must have been a target of the scheme to defraud and must have relied to his detriment on misrepresentations made in furtherance of that scheme") (citations and alteration omitted). But cf. Terre Du Lac Ass'n, 772 F.2d at 472 (RICO standing exists even where plaintiff does not allege that it was a target of the racketeering activity). To the extent that the wholesalers do not have standing to sue, defendants do not face a risk of multiple liability if plaintiffs are allowed to sue.
Second, barring plaintiffs' claims would vitiate, rather than enhance, the policy of deterrence underlying the Illinois Brick doctrine. As explained by the Seventh. Circuit in Carter, granting full recovery to a single party rather than spreading recovery amongst all potentially injured parties gives incentive to sue to the person best positioned to uncover violations. See Carter, 777 F.2d at 1176. Insofar as defendants' fraud was designed to increase the purchasers' demand for "light" cigarettes, it would be pointless to concentrate full recovery in the hands of the wholesalers. There is no reason to surmise that the wholesalers would be in a better position to uncover fraud committed upon the consumers. If plaintiffs' contentions are correct, the wholesalers stood to gain from defendants' fraud, since it increased total cigarette sales for both producers and wholesalers.
Where the wholesalers have not suffered any injury that might induce them to sue, allowing plaintiffs' claims is the only way to ensure that the defendants will not retain the fruits of illegal practices. Although individual plaintiffs' stakes may be small, Hanover Shoe, 392 U.S. at 494, 88 S.Ct. 2224, aggregating their damages in a class action provides adequate incentive to sue.
Defendants rely on the Second Circuit decision in Sperber, 849 F.2d at 60, a civil RICO action by investors in six publicly
Defendants here contend that the facts of Sperber closely parallel the plaintiff smokers' allegations, since the plaintiffs in Sperber had similarly alleged that defendants' fraud created the demand for stocks. Defendants' analogy is misplaced. The Second Circuit specifically based its holding in Sperber on the fact that plaintiffs were not targets of the racketeering enterprise, and that defendant did not deceive plaintiffs with regard to the relevant stocks. In the case before the court, plaintiffs allege that they were the intended targets of defendants' fraud, and that the defendant manufacturers deceived them into buying "light" cigarettes.
Also distinguishable are the Third Circuit decision in McCarthy, 80 F.3d at 842, which barred suit by hospital patients for inflated photocopying charges, and the Seventh Circuit decision in Carter, 777 F.2d 1173, which barred suit by taxpayers for injuries derived from defendant's tax fraud upon the county. Plaintiffs in McCarthy were patients who asserted both antitrust and RICO violations, alleging that the defendant hospitals and copying services conspired to charge excessive prices for photocopies of their medical records. McCarthy, 80 F.3d at 845. In practice, the plaintiffs' attorneys requested the photocopies of their clients' medical records in the course of their representation, after obtaining consent from their clients. Id. Defendants billed the attorneys for the requested photocopies. Id. The plaintiffs had contingent fee arrangements with the attorneys, and all but one of the plaintiffs had no obligation under their retainer agreements to reimburse the attorneys for photocopying services, unless the attorney obtained monetary recovery in favor of the respective client. Id. at 845-46. In these circumstances, the Third Circuit held that the indirect purchaser rule barred plaintiffs' claim, since the attorneys, and not the clients, were direct purchasers of the photocopies. Id. at 852. The contingent basis on which attorneys passed on costs to the clients, if any, would have made it too
McCarthy is not on point because the plaintiffs were not the direct victims or targets of defendant's unlawful conduct. The patients would have suffered no injury unless their attorneys first obtained monetary recovery in their favor. No allegation was made that the defendant hospitals and copy services induced patients through fraud to request more photocopies of medical records, or that they otherwise targeted the patients. Here, by contrast, plaintiffs have alleged that defendants induced them to buy more "light" cigarettes by falsely representing to them that they would experience reduced health risks from the lower amounts of tar and nicotine in "light" cigarettes.
The Carter decision is distinguishable for the same reason. In that case, taxpayers brought a RICO action against a defendant who had previously pled guilty to paying money to county officials to obtain lower tax assessments for his clients. Carter, 777 F.2d at 1174. The taxpayers alleged that they had been injured because they had to pay more taxes to make up for the illegal lower assessments. Id. The Court of Appeals for the Third Circuit held that the taxpayers did not have standing to sue because their injury was derivative of injury to the county. Id. While recognizing that a "fraud committed against one person often injures others," the court stated that "concentrating the entire right to recover in the hands of the directly injured party promotes deterrence," because that person has the best opportunity to uncover a violation. Id at 1174, 1176. While in Carter the taxpayers sought to recover for fraud committed against county, plaintiffs in the present case seek to recover for fraud against themselves. They had the best opportunity and motive to uncover the alleged RICO violations and the right to recover properly belongs to them.
Defendants have also relied on three cases which barred RICO defendants from asserting that plaintiffs had no standing to sue because they recouped their losses by passing on the costs to their customers. In the Court of Appeals for the Sixth Circuit case County of Oakland, 866 F.2d at 839, plaintiff counties sued the city and the mayor of Detroit under antitrust and RICO theories. Id. at 841. The counties' allegation was that the city's charges for sewerage services were inflated because of a price-fixing conspiracy concerning the city's contracts for sludge disposal. Id. The district court had held that the counties had suffered no injury in fact because they passed on the costs to municipalities, which in turn passed on the costs to the ultimate consumers. Id. The Court of Appeals for the Sixth Circuit reversed, holding that the counties had standing to bring suit, even if they had passed the overcharge down the chain of distribution to the ultimate consumers. Id. at 851.
Defendants place great emphasis on the Court of Appeals for the Sixth Circuit's dicta that allowing the defendants to assert the pass-on argument would have transformed the case into a massive class action by the end users and would have presented "enormous evidentiary complexities and uncertainties" in determining each class member's damages. Id. at 850 (citations omitted). Notwithstanding these rationales, County of Oakland did not involve a situation where defendant specifically targeted the end users or manipulated demand for sewerage services. The court's holding cannot be extended to a situation where defendants' fraud directly manipulated the end users' demand for "light" cigarettes. The public interest in deterring RICO violators by granting remedies
Defendants cite the decision in Blue Cross & Blue Shield of New Jersey, Inc. v. Philip Morris, Inc., 138 F.Supp.2d 357 (E.D.N.Y.2001). In Blue Cross, plaintiff insurer asserted a subrogation claim against cigarette manufacturers on the theory that defendants' deceptions about the adverse health effects of tobacco caused plaintiffs subscribers to incur medical costs, which plaintiff paid. Id. at 360, 363. The court rejected defendants' claim that the plaintiff insurance company did not suffer any injury because it passed on the increased health care costs to its subscribers. Id. at 360, 363-64. In rejecting the pass-on defense, the court emphasized that plaintiffs "subrogated action [was] not predicated on the idea that costs may have been passed on to its insured in higher premiums," but was an "independent action in which equitable principles are applied to shift [the] loss to the one who caused [it]." Id. at 363.
Defendants in the present case erroneously claim that Blue Cross held that only the direct purchaser can be properly regarded as the damaged party. The plaintiff insurance company in Blue Cross was not a purchaser of tobacco, let alone a direct purchaser. Furthermore, plaintiff in Blue Cross did not assert a direct RICO claim against defendants in its own right, but rather asserted the rights of its subrogors. Blue Cross, therefore, merely stands for the proposition that insurance subscribers who were injured by paying higher premiums because of tobacco manufacturers' deceptions had the right to recover.
Defendants here directed their marketing and advertising directly at plaintiff smokers. The smokers' injury is not derivative of injury to the wholesalers. Illinois Brick does not bar the suit.
3. Conclusion on Causation
Plaintiffs' theory of causation is sound. Their supporting evidence is sufficient to withstand a motion for summary judgment.
This section covers computation of total damages. Distribution of damages through the "fluid recovery" system is covered in Part IX.B, infra. Allocation among defendants is dealt with in Part IX.C, infra.
Damages recoverable under RICO are equivalent to the injury suffered, trebled. See 18 U.S.C. § 1964(c). Defendants contend that, even if plaintiffs could prove that defendants intentionally misrepresented the health risks of "light" cigarettes, plaintiffs cannot demonstrate that class members suffered compensable damages. Because plaintiffs have offered two methods of calculating class damages that comport with defendants' rights and Daubert requirements, the contention is rejected.
Plaintiffs' models for determining loss to the misled purchasers of "lights" come well within the legal boundaries of damages for deceit. As McCormick stated it in his old, but still classic treatise:
Charles T. McCormick, Handbook on the Law of Damages 448 (1935). See Part III.D.2.a, infra.
A certain degree of flexibility in computing damages is allowed, whatever the purist's view of the applicable of damage law. Even, for example, in condemnations cases, where there is a fairly clear rule that market value is determined by what willing sellers and buyers would pay for comparable properties, the special value to the owner—here, the cigarette purchaser—will be considered. See, e.g., Lewis Orgel, Valuation Under the Law of Eminent Domain § 43 (2d ed.1953) (value to owner may influence estimate of "fair market value").
1. Plaintiffs' Models
Plaintiffs have offered, as possible measures of the injury they have suffered, models based on profit disgorgement, price impact, loss of value, and loss of market. Defendants challenge the admissibility of the profits disgorgement and price impact models on Daubert grounds. In an earlier memorandum and order, this court granted defendants' motion to exclude the profits disgorgement model entirely and the price impact model in its initial form. See Schwab v. Philip Morris USA, Inc., 2005 WL 2401647 (E.D.N.Y. Sept. 29, 2005). Defendants make no motion to exclude the loss of value and loss of market models, but contend that neither demonstrates harms compensable under RICO.
a. "Loss of market" model
The "loss of market" model is based primarily on the expert report of Dr. Jeffery Harris. See Part VIII.F.1.h, infra. It asks whether, were it not for defendants' alleged fraudulent conduct, the market for "light" cigarettes would have existed. Based on responses by consumers in sample surveys and the significant costs that defendants incurred setting up, marketing, and manufacturing "light" cigarettes, Dr. Harris concludes that smokers who were aware of the true nature of "light" cigarettes would not have been willing to purchase them at a price high enough to earn defendants a profit—and so the market would not have existed at all. Damages under the loss of market model would be equal to the full purchase price of all "light" cigarettes sold during the class period in the covered areas. This is a restitutionary measure of damages. It is inconsistent with the facts that show some smokers would have continued to smoke "light" cigarettes because of their addiction or for other reasons. Nevertheless, the effect of the fraud on the "lights" market price can be considered in determining loss of value ("b," infra) and price impact ("c," infra).
Recovery under civil RICO is limited "to the extent that [a plaintiff] has been injured in his business or property." Sedima, S.P.R.L., v. Imrex Co., Inc., 473 U.S. 479, 496, 105 S.Ct. 3275, 87 L.Ed.2d 346 (1985). This court has previously ruled that disgorgement of profits would represent an inappropriate measure of damages in this RICO suit. See Schwab v. Philip Morris USA, Inc., 2005 WL 2303821 (E.D.N.Y. Sept. 22, 2005).
b. "Loss of value" model
The "loss of value" model relies on sample surveys that asked smokers to compare their willingness to pay for "light" cigarettes that reduced health risks and "light" cigarettes that were no less harmful than regular cigarettes. Based on these responses, plaintiffs' expert Dr. Harris
c. "Price impact" model
The "price impact" model uses a multiple regression analysis to determine the impact of the defendants' alleged fraud on the price of "light" cigarettes. It measures the impact of defendants' alleged fraud on the market price for "light" cigarettes. This model identifies a number of variables that might reasonably affect demand for defendants' products, including rates of cigarette consumption, income levels of smokers, population, taxes, advertising expenditures, production costs, and plaintiffs' knowledge of health risks. The model yields overcharge estimates for 5year periods between 1972 and 1998.
Though this court excluded the "price impact" model in its initial form, it granted leave to adjust the model to meet the reliability requirements of Rule 702 of the Federal Rules of Evidence and Daubert v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). The revised model is admissible. See Part VIII.F.1.a, infra.
2. Law
The laws governing RICO, securities fraud, and antitrust are all potentially relevant to the determination of the appropriate measure of damages in this suit.
a. Practice under common law
The common law of fraud and deceit may provide guidance in determining damages. Theories of fraud damages, like other tort theories, seek to restore the plaintiff to the position he or she occupied before the tort was committed. There are two common measures of damages for fraud: "benefit of the bargain" and "out of pocket loss." Both measures purport to make the plaintiff whole, but differ in their approach to remedying the fraud. The benefit of the bargain model attempts to place the plaintiff in the position he or she would have been in had the representations been true. The out of pocket measure attempts to indemnify him or her; it restores the plaintiff to the position he or she would have been in had there been no representation and transaction at all. It is a remedy "by the balance sheet." See James M. Fischer, Understanding Remedies 503 (1999).
A majority of state courts applies the "benefit of the bargain" measure in fraud actions. Under this measure, a plaintiff is entitled to the difference between the value of the object or service received and the value of the object or service as represented. See Victor F. Schwartz et al., Prosser, Wade and Scwhartz's Torts 1063 (10th ed. 2000) ("The `benefit-of-the-bargain' rule has been adopted by about two-thirds of the American courts that have considered the question."); 2 Dan B. Dobbs, Law of Remedies 551 (2d ed. 1993) ("The loss of bargain measure in some form has been used in most states, at least when the fraud is intentional . ."); Robert L. Dunn, Recovery of Damages for Fraud 28 (3d ed. 2004) ("[B]enefit-of-the-bargain is the `majority rule.'"); McCormick, Law of Damages 448, supra. A minority of state courts applies the "out of pocket" measure. Under this measure, plaintiffs are entitled to the difference between the value of the object or service received and the amount paid. See, e.g., McCormick, supra.
"Of the two measures the 'out-of-pocket' rule has been termed more consistent with
The out-of-pocket rule has been criticized by a majority of jurisdictions for providing insufficient deterrence of fraudulent activities. Courts following the benefit of the bargain rule have urged its social utility, arguing that under the out of pocket rule, the wrongdoer is insured against loss from his wrongful act, since at most he will be required to sell the property in question at its actual value. See, e.g., United States v. Ben Grunstein & Sons Co., 137 F.Supp. 197 (1955); Fleet Nat'l Bank v. Anchor Media Television, Inc., 45 F.3d 546 (1st Cir.1995). Under the benefit of the bargain rule, by contrast, a merchant who commits fraud may be held to the value of what a good or service would have been worth if it had been as represented. See, e.g., Wilhoite v. Franklin, 570 So.2d 1236 (Ala.App.1990) (determining fraud damages based on what a misrepresented automobile would have been worth as represented, not as it actually was). Courts have not shied away from the inherent windfall that the benefit of the bargain rule gives successful plaintiffs. See, e.g., Carrel v. Lux, 101 Ariz. 430, 441, 420 P.2d 564 (1966) ("[I]f plaintiffs can satisfy a jury that they were defrauded by defendants, and that as a result of such fraud there was a difference of $25,000 between the value of the property they purchased had it been as represented and as it actually was, plaintiffs would be entitled to recover that sum as damages. The fact that plaintiffs may have negotiated a very advantageous purchase price . . . should have no bearing on their right to recover damages for fraud.").
The out of pocket and benefit of the bargain rules often produce the same result. Dunn, supra, 63. The rules diverge only when the value of the property as represented is greater than the price paid. "The courts then face a policy determination: Is the defrauded purchaser to be given the benefit of the `bargain' the purchaser thought he or she had?" Id. Some states have adopted a more flexible rule, which permits the court to use either the out of pocket or the benefit of the bargain rule, based upon which will more appropriately compensate the defrauded party. See, e.g., Aerotech Res., Inc. v. Dodson Aviation, Inc., 191 F.Supp.2d 1209 (D.Kan. 2002) (applying Florida law); Gardner v. Rosecliff Realty Co., 41 N.J.Super. 1, 124 A.2d 30 (1956).
In the instant suit, only benefit of the bargain damages would provide sufficient deterrence for the type of widespread, long-term fraud alleged—the aim of RICO's civil damages provision. See Rotella v. Wood, 528 U.S. 549, 557, 120 S.Ct. 1075, 145 L.Ed.2d 1047 (2000) ("The object of civil RICO is thus not merely to compensate victims but to turn them into prosecutors, `private attorneys general,' dedicated to eliminating racketeering activity."). Plaintiffs are not limited to their out of pocket losses.
b. Practice under securities law
The law of recovery in securities fraud actions is the largest body of federal fraud damages law. It often involves mail and wire fraud similar to that alleged in the
The Securities Act of 1933 and the Securities Exchange Act of 1934 contain several explicit rights of action for parties injured by fraudulent statements made in connection with the sale or purchase of securities. See Securities Act of 1933 §§ 11(e), 12(a), 15 U.S.C. §§ 77k(e), 771(a); Securities Exchange Act of 1934 §§ 9(e), 18(a), 15 U.S.C. §§ 78i(e), 78r(a).
i. 1933 Act
Damages under the 1933 Act are limited by statutory language to the difference between the purchase price of the security and the value of the security at one of several later dates (time of sale before suit, time of suit, or time of sale after suit but before judgment), or the cost of purchase, plus interest and less any income earned. See 1933 Act, supra. These measures are "out-of-pocket" measures; they award the plaintiff the difference between the sum he expended and the value he received. RICO does not contain a similar limitation.
ii. 1934 Act
The 1934 Act's explicit statement of the relevant rights of action are, like RICO, phrased generically. See 1934 Act §§ 9(e) (permitting plaintiff "to recover the damages sustained as a result of any . . . act or transaction" manipulating the price of securities), 18(a) (permitting plaintiff to recover "damages caused by . . . reliance" on misleading statements). They are of greater use in considering the appropriate measure of damages in a RICO case. The Supreme Court has recognized implied private rights of action for fraud under sections 10 and 14 of the 1934 Act and SEC Rule 10b-5. See 1934 Act §§ 14(a), 14(e); 17 C.F.R. §§ 240.10b-5, 240.14a-9.
(a) Explicit rights of action
Case law on the topic is scant but suggests that either measure of damages may be appropriate pursuant to the explicit right of action under section 9 of the 1934 Act. See Sarlie v. E.L. Bruce Co., 265 F.Supp. 371, 375-76 (S.D.N.Y.1967) (describing "the difference between the prices at which [plaintiff] purchased the stock and the prices at which [plaintiff] would have purchased the stock in an unmanipulated market" as the "customary measure" under section 9 but applying out-of-pocket loss as an "alternative measure" on the facts).
This court has been unable to find a reported decision that throws light on the appropriate measure of damages for the explicit right of action under section 18(a) of the 1934 Act.
(b) Implied rights of action
Section 28(a) of the 1934 Act governs damages under rights of action implied from the 1934 Act. It prohibits recovery under its provisions "in excess of . . . actual damages on account of the act complained of." 1934 Act § 28(a). The Court of Appeals for the Second Circuit has ruled that the "actual damages" limit of section 28(a) applies to the implied rights of action under the 1934 Act. See Green v. Wolf Corp., 406 F.2d 291, 302 (2d Cir. 1968). This has not prevented it from applying a benefit-of-the-bargain measure of damages in appropriate situations. See Wilson v. Great Am. Indus., Inc., 979 F.2d 924, 932-33 (2d Cir.1992) ("The benefit of the bargain rule . . . is the appropriate measure of damages in this matter."); Osofsky v. Zipf 645 F.2d 107, 114 ("We believe that the benefit-of-the-bargain rule should be applied under the 1934 Act to the limited situation involved in this case . . ."). See also Wilson, 979 F.2d at 933
The Supreme Court has noted that either measure of damages may be appropriate depending on the facts of a particular case. See Mills v. Electric Auto-Lite Co., 396 U.S. 375, 388-89, 90 S.Ct. 616, 24 L.Ed.2d 593 (1970) (discussing situations in proxy fraud cases that might justify one measure or the other). The Court has also contemplated recoveries under the 1934 Act greater than either the benefit-of-thebargain or out-of-pocket measures would afford. See Randall v. Loftsgaarden, 478 U.S. 647, 661-2, 106 S.Ct. 3143, 3152, 92 L.Ed.2d 525 (1986) ("the mere fact that the receipt of tax benefits, plus a full recovery under a rescissory measure of damages, may place a § 10(b) plaintiff in a better position than he would have been in absent the fraud, does not establish that the flexible limits of § 28(a) have been exceeded."); Affiliated Ute Citizens of Utah v. U.S., 406 U.S. 128, 155, 92 S.Ct. 1456, 1473, 31 L.Ed.2d 741 (1972) ("the correct measure of damages under [§ 28 of the Act is the difference between the fair value of all that the . . . seller received and the fair value of what he would have received had there been no fraudulent conduct, except for the situation where the defendant received more than the seller's actual loss. In the latter case damages are the amount of the defendant's profit.") (citations omitted). In short, though recovery under the implied rights of action under the 1934 Act is limited to "actual damages," any one of several measures may be appropriate under the specific circumstances of the suit at issue. "These questions, of course, are for decision in the first instance by the District Court . . . [. O]ur singling out of some of the possibilities is not intended to exclude others." Mills, 396 U.S. at 389, 90 S.Ct. 616.
c. Practice under antitrust law
Antitrust law may be relevant to a consideration of the appropriate measure of damages in a RICO suit because the private suit provision of RICO was based on the Clayton Act. Compare 15 U.S.C. § 15(a) ("any person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor . . . and shall recover threefold the damages by him sustained, and the cost of suit, including a reasonable attorney's fee.") with 18 U.S.C. § 1964(c) ("[a]ny person injured in his business or property by reason of a violation of section 1962 of [chapter 18] may sue therefor . . . and shall recover threefold the damages he sustains and the cost of the suit, including a reasonable attorney's fee . ."). See Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483 U.S. 143, 151, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987) ("The clearest current in the legislative history of RICO is the reliance on the Clayton Act model." (citation omitted)). Though the antitrust laws address different underlying causes of action than RICO, they share common problems of estimation.
Antitrust remedies require that courts estimate the amount of damages attributable to a defendant's unlawful actions. This can never be done with absolute precision.
The impossibility of determining precisely how much damage is attributable to an antitrust defendant's actions has led the Supreme Court to sanction the use of estimates. "[W]hile the damages may not be determined by mere speculation or guess, it will be enough if the evidence show the extent of the damages as a matter of just and reasonable inference, although the result be only approximate." Story Parchment Co. v. Paterson Parchment Paper Co., 282 U.S. 555, 563, 51 S.Ct. 248, 250, 75 L.Ed. 544 (1931). See generally C. Douglas Floyd & E. Thomas Sullivan, Private Antitrust Actions 995 ff. (1996).
These estimates are often based on hypothetical, or counterfactual, situations—e.g., what would the market have been like but for the antitrust violation? Courts have permitted recovery for increased costs, lost profits, and a reduction in the value of a business as a consequence of antitrust violations using a variety of measures. The increased cost suits stemming from price fixing are somewhat similar to the allegations in the instant suit. The measures of damages used there are pertinent to the determination here.
In a price fixing case, the plaintiffs allege that they have incurred excess costs because of collusion by defendants. If injury is proven, damages will be awarded in the amount the plaintiffs paid over a hypothetical "reasonable rate." Thomsen v. Cayser, 243 U.S. 66, 88, 37 S.Ct. 353, 360, 61 L.Ed. 597 (1917). Courts have approved "pre-post," "yardstick," economic model, and cost measurement approaches, based on the facts of the particular case. See generally Floyd & Sullivan at 999-1000.
The "pre-post" (or "before and after") method of calculating damages has been utilized in cases of horizontal price fixing. This test compares pricing levels prior to the impact of the violation with pricing levels subsequent to it. See, e.g., Gaines v. Carrollton Tobacco Board of Trade, Inc., 496 F.2d 284, 286 (6th Cir.1974) ("detailed comparisons of the sales of the [plaintiff] in the two years operated [during period of alleged antitrust violation] to subsequent years operated without them . . . serve to demonstrate damages and may be used to compute same"). The pricing data is used to determine the respective pricing variance between the prices that prevailed in the affected market and the prices that would have prevailed in a market unrestrained by the defendant. See, e.g., American Crystal Sugar Co. v. Mandeville Island Farms, 195 F.2d 622 (9th Cir.), cert. denied, 343 U.S. 957, 72 S.Ct. 1052, 96 L.Ed. 1357 (1952) (in case alleging price fixing conspiracy among agricultural product buyers, appropriate measure of damages was difference between the price at which plaintiffs sold their products and the higher price they would have received had the conspiracy not existed).
The yardstick test has been utilized in horizontal, as well as vertical, price fixing cases. This test compares pricing information from the affected market with pricing data from markets that have not been affected by defendant's antitrust violations. These figures are then used to calculate a price differential from which a reasonable market rate can be determined. See, e.g., Phillips v. Crown Central Petroleum Corp., 426 F.Supp. 1156 (D.Md.1977) (four independent gasoline service station dealers sued their supplier alleging both horizontal and vertical price fixing; in proving their damages, plaintiffs compared the wholesale prices charged by the defendant with the wholesale prices prevailing in areas unaffected by the defendant's antitrust violations). This test is generally used by
The economic model approach has also been utilized in price fixing cases. Under this approach expert witnesses introduce economic models that correlate numerous factors and their corresponding effect on pricing levels. Courts have allowed plaintiffs to use this method in cases where the expert testimony has a rational basis in the record. See, e.g., Lehrman v. Gulf Oil Corp., 500 F.2d 659, 668 (5th. Cir.1974) (holding that experts' damage estimates may be indirect and may include estimates based on assumptions, so long as the assumptions rest on adequate data).
A fourth method of calculating damages in antitrust price fixing cases has also been utilized, the cost measurement approach. While the "pre-post," yardstick, and economic model approaches emphasis price comparisons, the cost measurement approach uses the defendant's profit and cost data as evidence of the plaintiff's damages. Under the cost measurement approach the plaintiff must prove damages by establishing a competitive profit level and the amount by which the defendant's profits exceeded this level during the period of alleged price fixing. The plaintiff can prove this by using one of two profit theories: (1) a historical analysis of the defendant's profits over time or (2) a comparison of the defendants' profit rates with those, of "competitive industries." See Floyd & Sullivan at 1002.
This diversity of approaches demonstrates courts' willingness to confront difficulties of proof with practicable solutions. Without deciding the precise measure of damages computation that will be presented to the jury, it is apparent that there is sufficient basis in the evidence to support a variety of appropriate definitions.
3. Application of Law to Facts
Recovery in civil RICO fraud cases is highly fact-specific. "Because of the wide range of predicate acts and possible enterprises and plaintiffs, it is not feasible to set forth a general list of items normally recoverable under civil RICO." 4 L. Sand et al., Modern Federal Jury Instructions 84-70 (2003).
a. Appropriate measure
Facing the question of appropriate damages in state "lights" fraud litigation, courts have applied the benefit of the bargain rule. See Craft, 2003 WL 23139381, at *9 (denying defendants' motion for summary judgment on damages; the "[p]laintiff has a very plausible chance of proving H ascertainable losses and damage"); Aspinall, 442 Mass. at 399, 813 N.E.2d 476 ("[B]enefit of the bargain' damages, if proved with reasonable certainty, would be appropriate in this case."). As the court pointed out in Craft, defendants' theoretical objections to plaintiffs'"loss of value" model of damages are contravened by common sense.
2003 WL 23139381 at *9 (footnote omitted).
The benefit of the bargain model prevents a windfall to the wrongdoer who has mulcted a consumer, but not in an amount greater than the actual value of the product. "To allow for the plaintiff . . . only the difference between the real value of the property and the price which he was induced to pay for it would be to make any advantage lawfully secured to the innocent purchaser inure to the benefit of the wrongdoer." Craft, 2003 WL 23139381, at *7 (quoting Kendrick v. Ryus, 225 Mo. 150, 123 S.W. 937, 940 (1909)). Under the out of pocket measure, a merchant who deliberately deceived a customer by representing that a widget that in fact was worth only $2 had special characteristics, making it appear to be worth 83, and selling him that widget for $2, would be immune from liability. Defendants' out of pocket theory overlooks the importance of the deceit to the smokers' decision to enter into the transaction at all.
Kendrick v. Ryus, 123 S.W. at 940 (quoted in Craft at *7).
Inducement to contract is particularly important in this case, where plaintiffs have argued with force that defendants deceived smokers about the health risks of "light" cigarettes in order to prevent those active smokers who were worried about their health from quitting and to encourage health-conscious prospective smokers to start. "Light" cigarettes now make up almost fifty percent of the overall market for cigarettes. On the record before the court, a jury could reasonably find that plaintiffs were fraudulently induced to purchase "light" cigarettes (i.e., enter the contract) by defendants' misrepresentations about the health risks of those cigarettes. In the instant case, the benefit of the bargain models proposed by plaintiffs are valid measures of damages suffered.
Contrary to defendants' contentions, the holding in Milken, 17 F.3d 608 (discussed in Part III.B.2.a, supra) does not require a different result. The Court of Appeals for the Second Circuit's statement that "damages as compensation under RICO . . . must, under the familiar rule of law, place [plaintiffs] in the same position they would have been in but for the illegal conduct[,]" Id. at 612, is a restatement of the goal of all tort damages. As explained in Part III.D.2.a, supra, both the benefit of the bargain and out of pocket models "seek to restore the plaintiff to the position he or she occupied before the tort was committed. . . . Both measures purport to make the plaintiff whole, but differ in their approach to remedying the fraud. The benefit of the bargain model attempts to place the plaintiff in the position he or she would have been in had the representations been true. The out of pocket measure attempts to indemnify him or her; it
Because application of the "transaction causation"-"loss causation" rule is rejected in this case, see Part III.C.1.d, supra, the suggestion in the cases using that rule that plaintiffs would be limited to out of pocket damages is of limited utility.
If the benefit of the bargain measures were held to be improper, the jury could be charged to consider only out of pocket losses, which would be based upon the number of packs of cigarettes purchased by smokers who would otherwise have quit and the number of excess cigarettes smoked by those who compensated on a per-day, rather than exclusively per-cigarette, basis. There is evidence to support a calculation of damages due to these factors. See, e.g., Part VIII.H, infra (discussing evidence of effect of "lights" marketing on smoking quit and initiation rates); Neal Benowitz, "Compensatory Smoking of Low-Yield Cigarettes," in Monograph 13 (in portion of chapter not appearing in Appendix E, surveying studies showing cigarette consumption increases with switch to lower yield cigarettes). If necessary, additional time would be permitted to develop out of pocket losses for trial.
b. Degree of precision required
Defendants attack plaintiffs' theory of damages as speculative. Benefit of the bargain damages are always somewhat imprecise. As noted in the antitrust context, they require a court or jury to determine what would have happened were it not for the defendant's misconduct. See Kendrick at 940, quoted in Craft at *8 ("[D]amages under th[e benefit of the bargain] rule, in terms of determining the `as represented' value, are deemed somewhat speculative. Although that has historically been the chief criticism of those who dislike the rule, the difficulty of proof is no greater than in warranty cases where the same rule applies . .").
That defendants have allegedly fraudulently marketed a good without readily determinable value "as represented" does not justify dismissal. "The fact that the property sold was of such a character as to make it difficult to ascertain with exactness what its value would have been if it had [been as represented] affords no reason for exempting the defendant from any part of the direct consequences of his fraud." Kendrick at 940.
Where injury is established, damages need not be demonstrated with precision. Under the long-standing—and typical—New York rule, when the existence of damage has been established, and the only uncertainty is as to its amount, the plaintiff will not be denied a recovery of substantial damages. See Lee v. Joseph E. Seagram & Sons, Inc., 552 F.2d 447, 456 (2d Cir.1977); W.L. Hailey & Co. v. County of Niagara, 388 F.2d 746, 753 (2d Cir.1967) (collecting New York cases). See also Blue Cross, Appendix B at Part XII, supra (rejecting a similar challenge to sufficiency of plaintiffs' proof of damages). The risk of uncertainty as to the amount of damage is upon the wrongdoer, Perma Research & Development v. Singer, 542 F.2d 111, 116 (2d Cir.1976), and the test for admissibility of evidence concerning prospective damages is whether the evidence has any tendency to show their probable amount. Duane Jones Co. v. Burke, 306 N.Y. 172, 192, 117 N.E.2d 237 (1954).
An estimate of damages, even when well-founded, "necessarily requires some improvisation, and the party who has
In a class action demanding statistical analysis of damages, as in any individual suit, the models presented by plaintiffs can be adopted in part, or not at all, by the jury without giving rise to a valid objection on grounds of undue speculation. See, e.g., Tyler v. Bethlehem Steel Corp., 958 F.2d 1176 (2d Cir.1992) (rejecting defendant's claim that damages award in employment discrimination case was "unduly speculative"; jury's award of $667,000 in future lost earnings fell well within plaintiff's expert's estimate of $915,105); New York v. Hendrickson Bros., Inc., 840 F.2d 1065, 1078 (2d Cir.1988) ("[W]e cannot accept appellants' contention that the jury's decision to award the State various fractions of the amounts demanded was not an equitable and reasonable one, for to do so in the circumstances here would permit defendants to profit by their wrongdoing at the expense of the person injured."). See also Hendrickson Bros., 840 F.2d at 1077 ("Although the jury is not allowed to base its damages assessment on speculation or guesswork, it is entitled to make a just and reasonable estimate of the damage based on relevant data, and render its verdict accordingly.").
In the antitrust context, the Supreme Court has approved imprecision as practicable and consonant with due process:
J. Truett Payne, 451 U.S. at 565-66, 101 S.Ct. 1923 (quoting Bigelow v. RKO Pictures, Inc., 327 U.S. 251, 264, 66 S.Ct. 574, 90 L.Ed. 652 (1946)). "[Any] other rule would enable the wrongdoer to profit by his wrongdoing at the expense of his victim. It would be an inducement to make wrongdoing so effective and complete in every case as to preclude any recovery, by rendering the measure of damages uncertain." Bigelow at 264-265, 66 S.Ct. 574.
The Court's justification for preventing uncertainty from redounding to the benefit of an antitrust tortfeasor—"the vagaries of the marketplace" that prevent "sure knowledge of what plaintiff's situation would have been in the absence of the" wrong, see J. Truett Payne, 451 U.S. at 565-566, 101 S.Ct. 1923—applies equally to RICO.
This latitude is only afforded if a plaintiff can trace his or her injury to the defendant's unlawful acts. It "is thus circumscribed by the need for proof of causation." United States Football League v. National Football League, 842 F.2d 1335, 1378 (2d Cir.1988). It does not threaten to punish an innocent defendant.
Both the loss of value and price impact theories of damages are sound and sufficiently supported by the evidence to go to a jury. They may form the basis for a determination of damages, if plaintiffs demonstrate causation.
Plaintiffs primarily seek money damages. They also seek equitable relief in the form of (1) disgorgement of profits and (2) an order eliminating the use of "lights" as a descriptor on packaging and in advertisements by defendants for some of their cigarette brands. Defendants move for partial summary judgment on these equitable claims.
Disgorgement of profits would duplicate damages—particularly as trebled— based upon claimed overpayments by plaintiffs. They would be inequitable.
Any order limiting the future use of the descriptor "lights" is best left to state cases, a case brought by the federal government (see United States v. Philip Morris, Appendix A, supra), government regulation by the Federal Trade Commission, or legislation. The government now substantially controls warnings on cigarette packaging and advertising. See Federal Cigarette Labeling and Advertising Act, Pub.L. No. 89-92, 79 Stat. 282 (1965), as amended by Pub.L. No. 98-474, 98 Stat. 2204 (1984) and by Pub.L. No. 99-92, § 11, 99 Stat. 393, 402-04 (1985), current version at 15 U.S.C. § 1331 (1982 & Supp. IV 1986). Cf., e.g., World Health Organization Framework Convention on Tobacco Control, art. 11(1)(a) (states party to the Convention agree to take measures to ensure that "tobacco product packaging and labeling do not promote a tobacco product by any means that are false, misleading, deceptive or likely to create an erroneous impression about its characteristics, health effects, hazards or emissions, including any term, descriptor, trademark, figurative or any other sign that directly or indirectly creates the false impression that a particular tobacco product is less harmful than other tobacco products. These may include terms such as `low tar', `light', `ultralight', or `mild.'"). The United States, along with 167 other nations, has signed the Convention, though it has yet to ratify it.
The motion for partial summary judgment dismissing plaintiffs' claims for equitable relief is granted.
5. Conclusion on Computation of Total Damages
Plaintiffs' theories of damages are sound. A rational jury could make a reasonably precise determination on the basis of either the price impact or loss of value model. Both may be submitted to the jury. Additional models may be created, and additional data generated, between now and trial.
Defendants move to dismiss on the ground that, as a matter of law, plaintiffs' claims are barred by RICO's four-year statute of limitations. Plaintiffs oppose.
1. Law
The statute of limitations for a civil RICO claim is four years. Agency Holding Corp. v. Malley-Duff & Assoc., Inc., 483 U.S. 143, 153, 107 S.Ct. 2759, 97 L.Ed.2d 121 (1987). Congress initially failed to include an express statute of limitations period for civil RICO actions when it passed the legislation. See id. at 146, 107 S.Ct. 2759. The Supreme Court remedied this omission in Malley-Duff when it "borrowed" the statute of limitations from what it considered the most analogous federal legislation, the Clayton Antitrust Act, 15 U.S.C. § 15(a), after which RICO was modeled. Id. at 153, 107 S.Ct. 2759.
The statute of limitations is an affirmative defense; defendants must plead and prove it. Fed.R.Civ.P. 8(c).
a. Accrual
Three distinct approaches to the accrual of the statute of limitations emerged in federal Courts of Appeals after the decision in Malley-Duff the common law discovery-of-injury rule, the last-predicate-act rule, and the discovery-of-injury-and-pattern rule. See Rotella v. Wood, 528 U.S. 549, 553, 120 S.Ct. 1075, 145 L.Ed.2d 1047 (2000).
In Klehr v. A.O. Smith Corp., 521 U.S. 179, 117 S.Ct. 1984, 138 L.Ed.2d 373 (1997), the Supreme Court rejected the last-predicate-act rule, which postponed the running of the statute of limitations until the commission of the last predicate act that formed the pattern of racketeering upon which the plaintiff's claim was based, regardless of when the plaintiff had knowledge of its injury resulting from the defendant's racketeering. See also Keystone Ins. Co. v. Houghton, 863 F.2d 1125, 1130 (3d Cir.1988), overruled by Klehr (stating the "last predicate act" rule). The Court gave two reasons why this rule was not appropriate: it was not consistent with the accrual rule from the Clayton Act, and it excessively lengthened the statute of limitations period. Klehr, 521 U.S. at 187-188, 117 S.Ct. 1984. The Court stated that such a rule "would permit plaintiffs who know of the defendant's pattern of activity simply to wait, `sleeping on their rights,'
. as the pattern continues and treble damages accumulate, perhaps bringing suit only long after the `memories of witnesses have faded or evidence is lost.'" Id. In Rotella, 528 U.S. 549, 120 S.Ct. 1075, 145 L.Ed.2d 1047, the Supreme Court rejected the discovery-of-injury-andpattern rule, which postponed the running of the statute of limitations until the plaintiff discovered, or reasonably should have discovered, both (a) the existence and source of his or her injury, and (b) the fact that the injury was part of a pattern. See also Bivens Gardens Office Bldg., Inc. v. Barnett Bank of Florida, Inc., 906 F.2d 1546, 1554-55 (11th Cir.1990).
The accrual rule now sanctioned by the Supreme Court for civil RICO claims is the discovery-of-injury rule, which starts the four year statute of limitations at the point when a victim discovers or reasonably should have discovered his or her injury. See Rotella, 528 U.S. at 558, 120 S.Ct. 1075.
b. Equitable tolling
The Court in Rotella noted that, "[i]n rejecting [the discovery-of-injury-andpattern] rule, we do not unsettle the understanding that federal statutes of limitations are generally subject to equitable principles of tolling, and where a pattern remains obscure in the face of a plaintiff's diligence in seeking to identify it, equitable tolling may be one answer to the plaintiffs difficulty." Id. at 560-561, 120 S.Ct. 1075 (internal citation omitted). Fraudulent concealment, or "affirmative continuing acts of fraud . . . coupled with active coverup of the fraud," may also justify relief from a statute of limitations that appears to have run. Klehr, 521 U.S. at 194, 117 S.Ct. 1984. The Court of Appeals for the Second Circuit has explicitly approved the use of equitable tolling principles in civil RICO suits. See Bankers Trust Co. v. Rhoades, 859 F.2d 1096, 1105 (2d Cir.1988) ("[T]he standard tolling exceptions apply.").
2. Procedural History
When the court denied defendants' initial motion to dismiss on statute of limitations
1) Based on surveys, other evidence and extrapolation, plaintiffs' experts might develop a model showing how many smokers of "light" cigarettes were ignorant of the alleged fraud in each relevant year.
2) Based on evidence, plaintiffs' experts might estimate the "pack premium" paid by smokers because of the fraud, and the total class damages for each year.
3) To provide a total loss for the period of liability fixed by the jury, the damages for each year might be summed up.
4) Members of the class might prove by affidavits the number of packs of "light" cigarettes they bought during the period to receive a pro rata share of damages.
Calculations might have to exclude geographic areas such as Illinois where, in the Price case, sales overcharges were recovered in a separate state substantive law fraud recovery and the recovery was then overturned on appeal on state-law grounds.
The population of smokers is not static. There was during the applicable time of alleged fraud a continuing introduction into the class of naive new smokers, including children who may have had no inkling of the extensive literature in the field concerning health risks of "light" and regular cigarettes, newly addicted sophisticated adults and other new smokers. Over the years there was also a continuing seepage out of the class of those who quit smoking, either voluntarily because of what they had learned about health risks; concern about their children's health; or disapproval of their spouses, peers and employers; or involuntarily because of death. Between the completely naive and the completely sophisticated lies a broad changing spectrum of smokers with partial knowledge that may or may not have been fully assimilated. There are, as defendants rightly suggest, probably as many variations in knowledge as there are individual smokers.
In short, to avoid the statute of limitations and determine total damages, plaintiffs' theory may depend upon an estimate predicated largely on expert testimony that may require disaggregation of smokers by knowledge, year by year, with reintegration to obtain total damages. Such estimates, if properly modeled and supported by evidence, may be appropriately used to resolve factual issues not
Prior discussion by the court in this case may have caused confusion in two respects. First, its attention to the proofs required of plaintiffs at trial may have distracted the parties from a central point: that the statute of limitations is an affirmative defense. Second, its exposition of a possible form of proof may have been regarded by the parties as a required form of proof. Money and time are finite; courts (and parties) rarely get the crystal clear evidence they would prefer. The "time study" of plaintiffs' expert Dr. Hauser—an effort to measure, using surveys and extrapolation, when members of the class actually learned of the alleged fraud—seemed that it might be a useful possible source of proof on this issue; it has been withdrawn by plaintiffs.
3. Application of Law to Facts
a. Actual knowledge
As to actual knowledge, defendants point to several surveys and statements by experts that less than a majority of smokers believe "light" cigarettes are healthier than regular cigarettes. Defs.' Br. in Opp. to Class Cert. 38-40. These surveys are controverted by plaintiffs, who rely upon surveys referred to in Monograph 13 and the expert reports of Katherine Kinsella (detailing news releases), Michael Dennis (interviews with named plaintiffs), and Robert Proctor (analyzing when smokers might reasonably have learned of the fraud). As to imputed knowledge that a smoker reasonably should have been expected to have, defendants have marshaled a number of media reports, public service announcements and case filings. These, too, are met with evidence supplied by plaintiffs.
Defendants also argue that smokers' knowledge for statute of limitations purposes must be decided for each individual smoker, making the statute of limitations defense presumptively valid and the class action unmanageable. See discussion of aggregate proof in Part IX.A, infra (rejecting this contention).
Untenable is plaintiffs' extreme position that no member of the class discovered the injury, and so set the statute of limitations running, before May 11, 2000 (four years before the complaint was filed). Some undoubtedly discovered the alleged fraud earlier, and of those some may have then quit smoking. The gradual attrition of those smokers who did not know or could not reasonably have known presents a problem of proof for plaintiffs' experts. It does not require the dismissal of the entire proposed class. Based upon the experts' reports and extrapolation from available facts, it is possible to make reasonable estimates by appropriate time periods of those whose claims would be barred by the statute of limitations. In addition, if the jury finds some claims barred, the equitable tolling rule may ameliorate the statute of limitations problem. See Part III.E.3.d, infra.
b. Imputed knowledge
Plaintiffs filed this case on May 11, 2004, claiming economic injuries arising from
i. Class counsel's knowledge
Many attorneys knew of the dangers of "light" cigarettes long before 2000. A substantial number of actions based on grounds of fraud much like those now alleged were brought earlier than May 11 of that year. Putative class counsel in the present case—Cohen, Milstein, Hausfeld & Toll, P.L.L.C. and Finkelstein, Thompson & Loughran ("plaintiffs' counsel")—filed four similar "light" cigarettes class actions in various state courts in 1998 and 1999: ASPINALL v. PHILIP MORRIS COS., No. 98-6002, 1998 WL 34190483 (Mass. Sup.Ct. Nov. 25, 1998); Cummis v. Philip Morris Cos., No. L-2114-98 (N.J.Super.Ct.) (filed July 9, 1998); Marrone v. Philip Morris Cos., No. 99 CIV 0954 (Ohio Ct.Com.Pl.) (filed Nov. 8, 1999); McClure v. Altria Group, Inc., No. 99C148 (Tenn. Cir.Ct.) (filed Jan. 19, 1999). Other "of counsel" attorneys to the class filed two "light" cigarettes class actions in state courts during the same period: Oliver v. R.J. Reynolds Tobacco Co., No. 268 (Pa.Ct. Com.Pl.) (filed Mar. 6, 1998); Trombino v. R.J. Reynolds Tobacco Co., No. L-11263-98 (N.J.Super.Ct.) (filed Jan. 19, 1999). In those state class actions, plaintiffs sought economic damages on state fraud and consumer protection law grounds alleging facts similar to those now relied upon. In 1999, the United States government filed a widely remarked upon complaint in federal district court for damages and injunctive relief under RICO and other statutes alleging that the tobacco companies misled consumers about the dangers of "light" cigarettes. That case, United States v. Philip Morris, was recently tried to a judgment. See 449 F.Supp.2d 1 (D.D.C. 2006) (part 1 of 6). Other private and state government plaintiffs filed RICO and consumer fraud suits in the 1990s alleging deceptive marketing of "light" cigarettes. See, e.g., ALLMAN v. PHILIP MORRIS, INC., No. 94-0504-IEG, 1994 WL 16138145 (S.D.Cal.1994); Mass. v. Philip Morris Inc., No. 95-7378 (Mass.Dist.Ct.); Maryland v. Philip Morris Inc., No. 96122017/CL211487 (Md.Cir.Ct.); ORGON v. PHILIP MORRIS, INC., No. 9706-04457, 1999 WL 33748770 (Or.Cir.Ct. 1999); Blue Cross & Blue Shield of N.J., Inc. v. Philip Morris, Inc., 178 F.Supp.2d 198 (E.D.N.Y.2001).
It is not denied that plaintiffs' counsel has had knowledge of the RICO injury alleged in this matter since at least July 1998, when they filed a class action alleging a similar fraud in New Jersey state court. Defendants contend that this knowledge should be imputed to the entire class under principles of agency. To do so would bar the suit entirely.
"The relationship between an attorney and the client he or she represents in a lawsuit is one of agent and principal." Veal v. Geraci, 23 F.3d 722, 725 (2d Cir.1994); see Restatement (Third) of the Law Governing Lawyers Ch. 2 Introductory Note (2000) (the attorney-client relationship is, "from one point of view, derived from the law of agency."). In a conventional attorney-client relationship, the attorney's knowledge is imputed to the client. Geraci, 23 F.3d at 725; Restatement (Third) of the Law Governing Lawyers ("Information imparted to a lawyer during and relating to the representation of a client is attributed to the client for the purpose of determining the client's rights and liabilities in matters in which the lawyer represents the client. . . ."); see generally Restatement (Second) of Agency
In some cases it is appropriate for an attorney's knowledge to be imputed to the client, particularly where there is a single attorney and a single known client in an ongoing relationship. That is not the situation now presented. In the instant case defendants seek to impute the knowledge of counsel to a class of unidentified plaintiffs numbering in the tens of millions who claim they were defrauded for decades. Principles of agency applicable in the single-attorney-single-client relationship cannot be transposed into the class action context under present circumstances. Cf. Restatement (Third) of the Law Governing Lawyers § 14 cmt. f ("Class actions may pose difficult questions of client identification."). How can a smoker who was not even aware when he purchased a pack of cigarettes years ago that any of the class attorneys existed be assumed to have known what the attorneys knew?
"Agency is the fiduciary relation which results from the manifestation of consent by one person to another that the other shall act on his behalf and subject to his control, and consent by the other so to act." Restatement (Second) of Agency § 1(1) (1958). Without consent by both parties, there can be no principal-agent relationship. See Restatement (Second) of Agency § 15. Unnamed class members have not yet "consented" to be represented by putative class counsel; these attorneys cannot be their agent for purposes of imputing knowledge of danger. The role of class counsel is akin to that of a judicially appointed fiduciary, not that of a privately retained attorney. See Restatement (Second) of Agency § 14F ("A person appointed by a court to manage the affairs of others is not an agent of the others."); cf. Rule 23(g), Fed.R.Civ.P. (setting forth standards governing mandatory court appointment of class counsel).
The mass nature of the class action requires that both the court and counsel carefully protect unnamed plaintiffs' rights. See Amchem Products, Inc. v. Windsor, 521 U.S. 591, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997); Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S.Ct. 2295, 144 L.Ed.2d 715 (1999); see generally John C. Coffee, Jr., Class Wars: The Dilemma of the Mass Tort Class Action, 95 Colum. L.Rev. 1343 (1995); Monograph, Individual Justice in Mass Tort Litigation 53 ff. (1995) (noting the ethical challenges facing class counsel). It does not permit the imposition of the principles of agency in a way that would bar the suit and deprive class members of experienced counsel. The knowledge of class counsel cannot be imputed to the members of the class for the purposes of determining whether this suit is barred by the statute of limitations.
The attorneys' knowledge is not decisive. What is critical is what and when the plaintiffs knew or should have known.
ii. Class members' knowledge
One line of cases, relied upon by defendants, has described the statute of limitations inquiry in terms of "storm warnings" —any information "that would alert a reasonable person to the probability that misleading statements or significant omissions had been made." Cetel v. Kirwan Financial Group., Inc., 460 F.3d 494, 507 2006 WL 2466855 at *7 (3rd Cir.2006); see also Nivram Corp. v. Harcourt Brace Jovanovich, Inc., 840 F.Supp. 243, 249
The enormous amount of conflicting evidence filed by the parties on the subject of consumer knowledge demonstrates that genuine issues of fact exist. Defendants cite several cases dismissed on "storm warnings" grounds. See, e.g., Isaak v. Trumbull Says. & Loan Co., 169 F.3d 390 (6th Cir.1999) (dismissing RICO claim against banks that provided loans to owners and developers of undeveloped timeshare); In re Burbank Envt'l Litig., 42 F.Supp.2d 976 (C.D.Cal.1998) (dismissing CERCLA claim against defendants for groundwater contamination). They are marked by the clear, pervasive and unequivocal nature of the warnings. See Isaak, 169 F.3d at 401 (plaintiffs had retained counsel, filed formal complaints, or abandoned ownership interests outside statute of limitations period; widespread newspaper accounts of state investigation into the resorts reported that the owners diverted plaintiffs' payments for their personal use); Burbank Enyt'l, 42 F.Supp.2d at 981 (plaintiffs were inundated by media reports, public meetings, and lawsuits; plaintiffs conceded that they had known of the contamination outside of the statute of limitations period). They are distinguishable from the notice provided in the instant case.
Defendants make a strong case that plaintiffs knew or should have known of their claimed economic injuries years before 2000. A number of reports appeared in newspapers, popular magazines, textbooks, government pamphlets, television news programs and public service announcements from the late 1950s to the present indicating that "light" cigarettes were not as safe as portrayed by defendants. Tens of millions of pages of internal documents could easily be obtained for research as a result of the Master Settlement Agreement of November 23, 1998 between the tobacco industry and various states' attorneys general. The Agreement provided that the tobacco companies would make available through their web sites and at a central depository in Minnesota many of the documents produced during discovery of the states' attorneys general actions. See Master Settlement Agreement ("MSA") 29-32. Not all of these documents were available at once; the earliest posting on the Philip Morris USA Document Site, for example, appears to be February 1998. Many of the documents relied upon by plaintiffs' counsel were available long before 2000 through the defendants' web sites and other channels.
In response, plaintiffs argue that plaintiffs' constant exposure to defendants' marketing overwhelmed any doubts they may have had about "light" cigarettes. Plaintiffs also point to the testimony of tobacco industry executives who testified that, into the late 1990s, they were ignorant of the phenomenon of compensation— a technique used by many smokers to increase their intake of nicotine and tar from "low-tar" cigarettes. The Price court found that Monograph 13 represented the first scientific consensus on the true nature of "light" cigarettes; it appears to have concluded that the class could not be deemed to have known of the fraud prior to the publication of the monograph. Id. at 1180. Defendants contest this point, arguing that Monograph 13 was only a reinterpretation of existing studies. Tr. of Sept. 12-13, 2005 Hr'g 229.
The instant matter is unlike other RICO statute of limitations cases before the Court of Appeals for the Second Circuit. Other litigations have dealt with either individuals in close contact with the persons who defrauded them, see, e.g., Tho Dinh Tran v. Alphonse Hotel Corp., 281 F.3d 23 (2d Cir.2002) (hotel employee suing hotel); Bingham, 66 F.3d 553 (administrator of estate suing decedent's legal advisors); Turkish v. Kasenetz, 27 F.3d 23 (2d Cir.1994) (trust beneficiaries suing administrators), or sophisticated plaintiffs who invested significant amounts of money in a venture controlled by defendants. See, e.g., In re Merrill Lynch Ltd. P'ships Litig., 154 F.3d 56 (2d Cir.1998) (investors in real estate limited partnerships); First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763 (2d Cir.1994) (federal stock association lending money to mortgage broker). Such plaintiffs in ongoing business relationships with defendants can be expected to be alert to the possibility of fraud in a way that the average smoker, spending a few dollars for a pack of cigarettes as a matter of habit, may not be. The plaintiffs in the instant matter are members of a nationwide mass market; their interaction with defendants was largely limited to advertisements and other general knowledge.
Under either the "storm warnings" analysis or more general Second Circuit approach, a jury question is presented.
c. Separate accrual
The Court of Appeals for the Second Circuit has adopted a "separate accrual" rule in civil RICO cases under which "a new claim accrues and the four-year limitation period begins anew each time a plaintiff discovers or should have discovered a new and independent injury." In re Merrill Lynch, 154 F.3d at 59 (separate accrual rule not applicable on the facts). If this rule were to apply here, it might permit recovery for economic damages suffered by plaintiffs on all packs of cigarettes purchased after May 11, 2000, four years before class counsel filed the complaint in this matter. Defendants argue that the rule is inapplicable because plaintiffs have alleged a single injury—the loss of value in packages of "light" cigarettes purchased in reliance on defendants' alleged fraud. Plaintiffs have not relied on the separate accrual rule in their papers in opposition to summary judgment, possibly for the sensible reason that if knowledge barred all claims for purchases before May 11, 2000, a fortiori it applied to purchases after that date.
d. Equitable tolling
Plaintiffs raise defendants' alleged ongoing deception as a bar to the statute of limitations defense. See, e.g., Part V.C.3.d,
Plaintiffs chronicle the past and ongoing efforts of the tobacco industry to induce public misperception of the health risks posed by smoking by indicating their doubt about the truth of warnings by the health services community, and by limiting the release of their own scientific studies; lobbying the Federal Trade Commission; cloaking documents with the attorney-client privilege; conducting animal studies outside the United States so that the results would remain secret; and working with scientists sympathetic to the industry to produce reports favorable to the industry's health claims. See Simon II, Appendix D, at Part III.B.4, infra.
One court apparently adopted the estoppel theory. See Price, Appendix C, infra. The Illinois court ruled that since evidence at that trial established that Philip Morris had concealed the truth about "light" cigarettes until November 2002 (when it added inserts to packages of "light" cigarettes that warned of their dangers), it could not assert that the plaintiffs should have been aware of the information any earlier. Price at 1181. As to actual knowledge, the court found that the company's decision to publish the inserts so widely (and duplicate their contents in newspaper advertisements and on its website) provided strong evidence that its customers were unaware earlier of the risks the inserts described. Id.
Whether the largely unknown still continuing increase in nicotine content provides a new basis for tolling, see Appendix F, infra, is a matter that need not now be addressed. See Part V.C.3.d (discussing the increase reported by the Massachusetts Department of Public Health). See also Simon II, Appendix D, at Part III. B.5, infra.
There is ample direct and indirect evidence of continuing coverups of the fraud by defendants. Based on the evidence, and experts' reports, a jury could find that many members of the proposed class did not discover the fraud because of defendants' inequitable conduct. Those smokers would not be barred by the statute of limitations. The number of smokers for whom the statute should be tolled during various periods may be determined from plaintiffs' experts and the available evidence. Equitable estoppel may provide another independent basis for not dismissing the suit on the ground of the statute of limitations.
Only if the jury finds plaintiffs' claims barred by the statute of limitations will equitable tolling be considered. See Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 508, 79 S.Ct. 948, 3 L.Ed.2d 988 (1959) (where suit raises both legal and equitable issues, legal issues must be tried to a jury before resolution of any equitable issues by the court).
4. Conclusion on Statute of Limitations
Because the statute of limitations is an affirmative defense and it cannot be said with any assurance that defendants would necessarily succeed in proving the defense at trial, the motion is denied. Defendants have not shown that the class members' claims are barred as a matter of law. Whether the issue is susceptible to class-wide treatment is discussed in Part VII. D.2.b.iii, infra.
The interactions between this case and others like it in which plaintiffs have sought recompense against these same defendants for harm caused by the sale or consumption of "light" cigarettes must be considered. Affected may be the motion to dismiss, issues to be decided by the trier, or the decision on certification. As indicated below, a substantial argument can be made that collateral estoppel makes it unnecessary to retry certain issues of fact, such as fraud and continuing concealment. Nevertheless, in the exercise of its discretion and in the interest of fairness to defendants, the doctrine will not be applied.
Under claim preclusion, "[a] final judgment on the merits of an action precludes the parties or their privies from re-litigating issues that were or could have been raised in that action." Federated Dep't Stores, Inc. v. Moitie, 452 U.S. 394, 398, 101 S.Ct. 2424, 69 L.Ed.2d 103 (1981). "Whether there is claim preclusion depends upon whether the same or connected transactions are at issue and the same proof is needed to support the claims in both suits or, in other words, whether facts essential to the second suit were present in the first suit." Curtis v. Citibank, N.A., 226 F.3d 133, 139 (2d Cir.2000). "[T]hat several operative facts may be common to successive actions between the same parties does not mean that the claim asserted in the second is the same that was litigated in the first, and that litigation of the second is therefore precluded by the judgment in the first." NLRB v. United Techs. Corp., 706 F.2d 1254, 1259 (2d Cir. 1983).
"One of the most general reasons for separating claims is that a broad course of completed unlawful conduct has included a clearly separable event that gave rise to distinctive injury." 18 Charles A. Wright, et al., § 4408 (2002). In this situation, claim preclusion would not apply, though, issue preclusion may still arise. Issue preclusion "means simply that when an issue of ultimate fact has once been determined by a valid and final judgment, that issue cannot again be litigated between the same parties in any future lawsuit." Schiro v. Farley, 510 U.S. 222, 232, 114 S.Ct. 783, 127 L.Ed.2d 47 (1994). Therefore if a suit shares some of the operative facts as a previous suit, issue preclusion will arise if those operative facts were determined by a valid and final judgment in the previous suit—but claim preclusion may not.
This is a civil class action under RICO for monetary loss based on the price paid for a product sold in violation of federal mail and wire fraud substantive law. The proposed class consists of all persons who purchased "light" cigarettes including those who: (1) did not use the product; (2) used the product and suffered no physical or other harm; (3) used the product and will suffer future physical or other harm; (4) used the product and have already suffered physical or other harm. It is conceivable that claim preclusion might apply to prevent those who have suffered physical or other harm, or will suffer future harms caused by the use of the product based on fraud under state substantive law from bringing a cause of action based on these physical harms. If those persons would be precluded from bringing a future cause of action then it might be useful for those claims to be severed, with a subclass created so that they may bring those claims now. If those personal injury claims would not be precluded, then bringing
This civil RICO suit shares operative facts with a cause of action for the physical or other harm caused by use of the product based on fraud under state substantive law. The instant suit, however, does not present the essential facts necessary for a personal injury suit, and therefore claim preclusion would not bar plaintiffs from bringing such a suit after this one.
A suit for physical or other injury based on use of the product would require proof of several essential facts not present in a RICO suit, namely that the plaintiffs used the product, and that the product's use caused harm to plaintiffs. The source of injury in the suit for monetary loss is the purchase of the product, rather than its use. See Restatement (Second) of Judgments § 24(2) ("What factual grouping constitutes a `transaction,' and what groupings constitute a `series', are to be determined pragmatically, giving weight to such considerations as whether the facts are related in time, space, origin, or motivation, whether they form a convenient trial unit, and whether their treatment as a unit conforms to the parties' expectations or business understanding or usage.") (emphasis supplied).
An additional factor suggesting that the claims for monetary loss caused by purchasing the product is different from the claim for harm caused by use of the product is that the claims matured at different times. The RICO claims matured immediately upon the purchase of the product, while the claims for injuries resulting from use of the product matured only after the sustained use of the product caused such injuries.
Since the evidence, facts, and issues necessary to maintain a cause of action for physical injury are separate and distinct from those required in this civil RICO case and a different judgment in any personal injury suit brought by a class member would not impair rights established by any judgment in the civil RICO case, any future physical injury claims would not constitute the same cause of action for purposes of claim preclusion.
For the same reason described immediately supra, defendants' challenge to certification on the basis of claim splitting is rejected. See Pearson, 2006 WL 663004 at *8 (rejecting claim-splitting challenge); Aspinall, 442 Mass. at 397 n. 19, 813 N.E.2d 476 (same); Craft, 2003 WL 23355745 at *13 (same; "any and all [] claims for personal injury . . . could not realistically be included in this [consumer fraud] action. . . . ").
To avoid any future contention about bars for claim preclusion, any personal injury claims of class members are deemed specifically preserved. See Restatement (Second) of Judgments § 26(1)(b) (claims possibly subject to preclusion may be specifically preserved by the court adjudicating the first action).
The final opinion issued in United States v. Philip Morris reaches conclusions on a number of factual issues germane to this case. See Appendix A, supra. Plaintiffs argue that these should collaterally estop defendants from relitigation of those issues in the present suit.
Collateral estoppel prevents a party from relitigating, in a subsequent proceeding, an issue of fact or law that was fully and fairly litigated in a prior proceeding. In the federal system collateral estoppel
For a plaintiff to bar a defendant from litigating an issue based on collateral estoppel:
Faulkner v. Nat'l Geographic Enters., Inc., 409 F.3d 26, 37 (2d Cir.2005). Application of offensive collateral estoppel is at the trial court's discretion. Parklane Hosiery, 439 U.S. at 331, 99 S.Ct. 645.
There is a strong argument for offensive collateral estoppel in this case. Present plaintiffs make identical allegations to those made in United States v. Philip Morris and bring their suit under the identical statute. Compare SAC ¶¶ 7-8 (alleging conspiracy to mislead the American public about the health risks of "light" cigarettes) with United States v. Philip Morris, 449 F.Supp.2d at 106-07 (concluding, by "clear and convincing evidence," that defendants knew there was no clear health benefit from low-tar and "light" cigarettes; knew smokers "were willing to trade flavor for reassurance that their brands carried lower health risks"; extensively marketed their "light" and low-tar brands to take advantage of smokers' concerns; and "[bly engaging in this deception . . . dramatically increased their sales of low tar/light cigarettes, assuaged the fears of smokers about the health risks of smoking, and sustained corporate revenues in the face of mounting evidence about the health dangers of smoking."). Matters in direct issue in both the federal government's suit and the present one include:
There was a full and fair opportunity to litigate these issues in the prior action: more than eighty four witnesses testified in a nine month bench trial. Defendants had every incentive to fully and vigorously litigate the claim against them; before an interlocutory order restricting disgorgement was issued by the Court of Appeals for the District of Columbia, $289 billion of allegedly ill-gotten gains were at risk. Even after the appellate court's limitation on available remedies, defendants' valuable brand identities were at risk: the government requested, and the court entered, an order enjoining defendants from using the term "lights" and other such descriptors.
Despite the good reasons to employ collateral estoppel, the court exercises its discretion not to do so. The fairness of its application in the present instance is questionable. See Parklane Hosiery, 439 U.S. at 330-331, 99 S.Ct. 645 (identifying situations where the use of offensive collateral estoppel might be unfair). First, in the government suit, defendant Liggett was, in effect, a prevailing party. Collateral estoppel could not be applied against it. See, e.g., Boguslaysky v. Kaplan, 159 F.3d 715, 720 (2d Cir.1998) ("[T]he resolution of the issue [must be] necessary to support a valid and final judgment [against the party] on the merits" in the prior action). Application of estoppel to all but one of many defendants would confuse the jury, making administration of the case more difficult. Second, defendants have won so many of the tobacco cases that applying the rule of the Restatement according conclusive effect to the last of the series of litigations is inappropriate. Cf., e.g., Restatement (Second) of Judgments § 15 cmt. c (applying rule in one defendant-one plaintiff cases); Parklane Hosiery, 439 U.S. at 331 n. 14, 99 S.Ct. 645 (cautioning against applying collateral estoppel when the last judgment is inconsistent with prior judgments favoring the defendant). Third, little efficiency would be gained: plaintiffs' proof of reliance and damages would almost certainly—as a matter of legal burden and persuasive strategy—require presentation of all evidence available to them of defendants' alleged scheme.
A number of state class actions alleging fraud in the sale of "light" cigarettes have been filed. See Part II.D, supra (listing and discussing these). Any plaintiff claims bound by a decision on the merits in one of those actions will be excluded from any recovery secured in this suit. See, e.g., Beck v. Levering, 947 F.2d 639 (2d Cir. 1991) (collateral estoppel and double recovery); LaFleur v. Whitman, 300 F.3d 256, 271 (2d Cir.2002) (choice of law in collateral estoppel); Bajwa v. Metropolitan Life Ins. Co., 208 Ill.2d 414, 281 Ill.Dec. 554, 804 N.E.2d 519 (2004) (Illinois collateral estoppel rule). The definition of the class accomplishes this result.
The preclusive effect of particular state actions on this suit has not been fully briefed; decision now would be premature. The preclusive effect of a suit decided against plaintiffs on grounds peculiar to state law, rather than on the facts, see, e.g., Price (described in Part II.D, supra) is dubious. For the reasons stated in D, supra, preclusive effect should not be given to any state judgment against defendants.
Pursuant to Rule 56 of the Federal Rules of Civil Procedure, defendants move for partial summary judgment dismissing plaintiffs' claims concerning the health risks of "light" cigarettes based on mutagenicity or toxic constituents. The motion is denied.
Defendants misconstrue the purpose of plaintiffs' evidence. Plaintiffs allege generally that defendants misled the American public by representing "light" cigarettes to be less dangerous than regular cigarettes when they knew they were not. The result, plaintiffs claim, was a stronger market for defendants' products than would otherwise have been the case and so a greater price per pack than would otherwise have been the case. As part of this scheme, plaintiffs contend, defendants refrained from conducting research that might reveal the dangers of their cigarettes and suppressed the results of the research they did conduct. Evidence that some internal tests of defendants revealed a risk of increased mutagenicity or toxicity from the ventilation holes of "light" cigarettes—and that defendants did not reveal this information to their consumers but instead continued to make explicit and implicit health claims about "light" cigarettes—would tend to prove the alleged fraud.
It is not actual increased toxicity, but defendants' knowledge of a possible risk, that plaintiffs need to demonstrate. This is a case of alleged fraud resulting in economic harm, not medical injury. Case law cited by defendants establishing the standard of proof required for increased risk claims in personal injury torts—a "reasonable medical certainty," see, e.g., In re Agent Orange Prod. Liab. Litig., 611 F.Supp. 1223, 1262-63 (E.D.N.Y.1985)— are thus inapposite. Defendants' arguments that the test results referred to by plaintiffs are unreliable and do not demonstrate to a scientific certainty an increased risk of harm in humans are irrelevant for the same reason.
The motion for partial summary judgment on mutagenicity is denied. Defendants will be free to argue at trial that the test results referred to by plaintiffs were so insignificant as to not confer upon them a duty to disclose, and that the price of "light" cigarettes would not have suffered had those results been known.
Defendant BATCo moves to dismiss pursuant to Rule 56 of the Federal Rules of Civil Procedure on the ground that plaintiffs cannot establish BATCo's liability for conduct of the enterprise; cannot prove BATCo's participation in the conspiracy charged; and cannot demonstrate that they have suffered compensable damages as a result of BATCo's conduct. Similar motions filed by BATCo in other litigations have been rejected. See United States v. Philip Morris USA, Inc., 321 F.Supp.2d 82, 85-86 (D.D.C.2004) (denying BATCo's motion for summary judgment in government's civil RICO suit for cigarette fraud, including misrepresentations about the health risks of "light" cigarettes); Blue Cross & Blue Shield of New Jersey, Inc. v. Philip Morris, Inc., 113 F.Supp.2d 345, 367-368 (E.D.N.Y.2000) (denying BATCo's motion for summary judgment in civil RICO suit alleging deception regarding the health risks of all cigarettes).
1. Extraterritoriality of RICO
BATCo challenges the court's subject matter jurisdiction over those parts of plaintiffs' claims based on BATCo's membership in foreign trade associations.
a. Law
The Supreme Court has not ruled on the extraterritorial reach of RICO; the Court of Appeals for the Second Circuit has discussed, but not resolved the issue. See North South Fin. Corp. v. Al-Turki, 100 F.3d 1046, 1051 (2d Cir.1996) ("[S]pecifying the test for the extraterritorial application of RICO is delicate work. That work has not been done, but we need not do it now.").
Al-Turki considered two possible tests—the "conduct test" and the "effects test"—drawn from securities and antitrust law. The securities "conduct test" confers subject matter jurisdiction on a court if "conduct material to the completion of the fraud occurred in the United States. Mere preparatory activities, and conduct far removed from the consummation of the fraud, will not suffice to establish jurisdiction." 100 F.3d at 1051. The "effects test" differs slightly under the antitrust and securities laws, but in either case confers jurisdiction on a court if the alleged wrongful conduct causes "substantial effects within the United States." Id.
Courts in this and other circuits have applied both, either, and neither of the two tests. See, e.g., Madanes v. Madanes, 981 F.Supp. 241 (S.D.N.Y.1997) (concluding that both tests may confer jurisdiction); Concern Sojuzvneshtrans v. Buyanovski, 80 F.Supp.2d 273, 278 (D.N.J.1999) (applying "conduct test" to foreign plaintiff alleging fraud committed abroad and finding it met); United States v. Noriega, 746 F.Supp. 1506, 1517 (S.D.Fla.1990) (ruling that RICO applies extraterritorially if "the racketeering activities produce effects or are intended to produce effects in this country"); Thai Airways Intern. Ltd. v. United Aviation Leasing B.V., 842 F.Supp. 1567, 1571 (S.D.N.Y.1994) (declining to "measure the extraterritorial reach of RICO" because allegations of racketeering activity occurring within the United States were sufficient to confer subject matter jurisdiction). In Al-Turki, the Court of Appeals suggested that the antitrust "effects test" might be the most appropriate under RICO, since RICO's civil provisions are based on the antitrust Clayton Act. See 100 F.3d at 1052.
The results of these two tests are not determinative. Securities and antitrust law are analogous, not controlling sources of law. The "ultimate inquiry," according to the Court of Appeals, is whether "Congress would have wished the precious resources of United States courts and law enforcement agencies to be devoted to [the alleged fraud] rather than leave the problem to foreign countries." Id. (quoting Bersch v. Drexel Firestone, Inc., 519 F.2d 974, 985 (2d Cir.), cert. denied, 423 U.S. 1018, 96 S.Ct. 453, 46 L.Ed.2d 389 (1975) (alteration removed)).
b. Application of law to facts
It is necessary to correct a misapprehension. Defendant BATCo cites Al-Turki for the proposition that RICO plaintiffs must demonstrate that a defendant's foreign conduct had direct and substantial adverse effects within the United States for jurisdiction to obtain; that case does not so hold. First, the "direct and substantial
Under either alternative test, BATCo's alleged conduct is sufficient to confer subject matter jurisdiction. Plaintiffs have alleged that BATCo participated in a conspiracy to deceive the American public through actions in the United States by deceitful marketing and manipulation of the public health community and governmental institutions in the United States, in order to prevent American smokers from learning the truth about "light" cigarettes—resulting in death, disease, and economic harm to millions. All members of the proposed class are United States residents; all damages stem from sales of "light" cigarettes within this country. Consideration of these claims is a proper and valuable use of "the precious resources of United States courts." Id. The court has jurisdiction over these claims. That some activities may have been engaged in abroad does not divest a federal court of jurisdiction.
2. BATCo's Liability
BATCo is a British corporation that sells one brand of light cigarettes in the United States. Until 1979, defendant Brown & Williamson was a subsidiary of BATCo. In a corporate reorganization in 1979, BATCo relinquished ownership of Brown & Williamson and became its affiliate.
a. BATCo's conduct of the enterprise
BATCo argues that plaintiffs' claims against it must fail because they cannot establish that it participated in the operation or management of the alleged RICO enterprise. In support of this argument, BATCo notes that it did not attend the December 1953 meeting of cigarette company executives where, according to the plaintiffs, the alleged enterprise was conceived; and that it was never a member of either of the two United States trade organizations through which the plaintiffs allege the enterprise was managed and directed. See, e.g., BATCo Mem. at 6-7; Reply Br. in Supp. of Def. BATCo's Mot for Summ. J. ("BATCo Reply") at 7-21.
Plaintiffs, in their opposition, demonstrate that there are numerous material issues in dispute about whether BATCo participated in the operation or management of the alleged enterprise. For example, while BATCo relies on the fact that it was not an official member of the United States trade organizations, plaintiffs allege that it nevertheless communicated and coordinated with both of them to further the enterprise's unlawful objectives. They also present evidence that BATCo created and joined related foreign trade organizations, such as the International Tobacco Information Center ("INFOTAB") and the Tobacco Research Council ("TRC"), in order to conceal, suppress, and destroy information that might adversely affect the enterprise's interests. See, e.g., Pls.' Mem. in Opp. to Def. BATCo's Mot. for Summ. J. ("Pls.' BATCo Opp.") at 4-8. See also Philip Morris USA, Inc., 321 F.Supp.2d at 85-86 (describing the government's evidence in support of its opposition to BACo's motion for summary judgment); United States' Mem. of Points and Authorities in Opp. to Mot. for Summ. J. by Def. BATCo at 6-49, United States v. Philip Morris USA, Inc., 321 F.Supp.2d 82 (D.D.C.2004) (government's evidence regarding the motivation for global coordination and BATCo's involvement).
BATCo argues that there is no evidence that it agreed to conspire with any of the other defendants to violate section 1962(c). See, e.g., BATCo Mem. at 20-22; BATCo Reply at 21-26. Plaintiffs, however, point to substantial circumstantial evidence that BATCo embraced, and assisted in achieving, the objectives of the conspiracy by (1) fraudulently denying the adverse health effects of smoking; (2) refraining from developing, marketing, and promoting products and feasible technologies it believed may have been likely to cause less harm than cigarettes sold at the time; (3) working with the enterprise to perpetuate the myth of independent research on smoking and health; and (4) making fraudulent representations regarding low tar cigarettes. See, e.g., Pls.' BATCo Opp. at 4-25. See also United States' Mem. of Points and Authorities in Opp. to Mot. for Summ. J. by Def. BATCo at 50-121, United States v. Philip Morris USA, Inc., 321 F.Supp.2d 82 (D.D.C.2004) (government's evidence regarding BATCo's involvement in the conspiracy). Additionally, the plaintiffs allege various statements by BATCo that support the conclusion that it knew of, and supported, the central objectives of the conspiracy. See, e.g., Pls.' BATCo Opp. at 7, 9. The jury could conclude that BATCo deliberately contributed to the general deceit and mendacity permeating public debate on "light" cigarettes' dangers in the United States. It, like other defendants, took positions gravid with seeds of deception about "lights."
BATCo also maintains that plaintiffs' section 1962(d) conspiracy claim against it cannot succeed because plaintiffs cannot prove that BATCo agreed that BATCo itself would commit at least two predicate acts in furtherance of the alleged conspiracy. See, e.g., BATCo Mem. at 20-22. Even assuming that plaintiffs are unable to prove that BATCo agreed to commit two predicate acts, this argument fails for the reasons explained in Part III.A.2, supra. Civil liability under RICO does not require that each conspirator agree to the personal commission of any element of the substantive offense—including the personal commission of two predicate acts.
c. Damages
BATCo maintains that plaintiffs' claims against it must fail because they cannot demonstrate that they are entitled to compensable damages as a result of BATCo's conduct. Even assuming that the plaintiffs cannot prove that they suffered damages as a result of their reliance on the predicate acts specifically alleged against BATCo, this argument does not persuade. As is described in Part V.B.1.2.b, supra, members of a RICO enterprise are liable for the foreseeable acts of their coconspirators taken in furtherance of the objectives of the conspiracy. As a result, if BATCo is found to have participated in the enterprise or the conspiracy with one or more of the other defendants and plaintiffs are able to show that they suffered damages as a result of their reliance upon the acts of the other defendants, BATCo may be held liable for the overall scheme to defraud and the resulting overall damages. What portion of total computed damages, if any, that it may be forced to pay is discussed in Part IX.C, infra.
d. BATCo's association with Brown & Williamson
BATCo complains that plaintiffs have attempted to "remedy the fatal flaws in their case" by pointing to actions of BACo's affiliate, Brown & Williamson, which cannot be attributed to BATCo under any
Because there are significant disputes about the material facts concerning BACo's own actions, there are, at this stage, no "fatal flaws" to be remedied by allegations regarding Brown & Williamson. Nevertheless, any attempt by the plaintiffs to rely on an "alter ego" theory to impute actions of Brown & Williamson to BATCo fails. Any actions of Brown & Williamson attributable to BATCo will be attributable to it, if at all, not because Brown & Williamson was BATCo's agent or alter ego, but rather because the two were both members of the same RICO enterprise and conspiracy.
3. Conclusion on BATCo's Separate Motion
Defendant BATCo's separate motion to dismiss the claims against it is denied. As the above recitation of the parties' positions demonstrates, there are numerous disputes about material facts and about the inferences and interpretations to be drawn from those facts which can only be resolved at trial. Acts of Brown & Williamson are not directly attributable to BATCo as its agent or alter ego. They may be attributed to it as a member of the enterprise and conspiracy. If BATCo is found to have participated in the charged enterprise or conspiracy, damages may be assessed against it on the theory of joint and several liability.
While the court has subject matter jurisdiction over those parts of plaintiffs' claims that are based on BATCo's membership in foreign trade associations, use of BATCo's alleged lobbying activities abroad may implicate the First Amendment right to petition a government. See E.R.R. Presidents Conference v. Noerr Motor Freight, Inc., 365 U.S. 127, 136, 81 S.Ct. 523, 5 L.Ed.2d 464 (1961) (First Amendment protects right of persons to associate together "in an attempt to persuade the legislature or the executive to take particular action with respect to a law"); United Mine Workers v. Pennington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d 626 (1965) (accord). But see United States v. Philip Morris, 449 F.Supp. at 886 (only public statements that "constitute direct attempts to persuade government officials" qualify for protection under Noerr-Pennington; press releases, advertisements, and the like that are "aimed at influencing smokers, potential smokers, and the public" do not). The court will hear motions in limine with respect to specific items of evidence offered by plaintiffs on these matters.
C.
Defendant Philip Morris USA Inc. ("PM USA") moves separately for summary judgment on all plaintiffs' claims arising on or after November 2002. PM USA claims that, in November 2002 and at various times thereafter, it provided disclosure sufficient as a matter of law to prevent any plaintiff from believing that it claimed its "light" cigarettes were any less dangerous than its regular cigarettes. The sufficiency and clarity of these disclosures, as well as their effect on consumer knowledge, given the history of public statements by PM USA and other defendants, cannot be decided on summary judgment.
I. Facts
a. PM USA's disclosures
In November 2002, PM USA began to make disclosures regarding "light" cigarettes in package "onserts," pamphlets attached to the outside of cartons or packs of
PM USA Onsert (Def. PM USA's Mot. for Summa Jmnt. on Claims After Nov. 2002, Ex. A). In November 2002, PM USA enclosed about 15.6 million booklets providing similar information about "light" cigarettes and compensation in more than 25 United States newspapers.
PM USA again utilized an onsert in packages of non-full flavor cigarettes in the fourth quarter of 2003 and 2004, and the second and fourth quarters of 2005. PM USA has disclosed information on its website about "light" cigarettes and compensation since October 1999. A current web page contains information identical to that found in the newspaper booklets. See www.pmusa.com (click on link for "Low Tar Cigarettes").
b. Plaintiffs'"concession"
At the class certification hearing in September 2005, plaintiffs' counsel made a statement that defendant PM USA contends is a concession of the non-viability of all post-November 2002 claims. The court asked plaintiffs' counsel whether, if PM USA had made the statements now available on its website at the time it introduced "light" cigarettes in 1971, there would have been a fraud:
Sept. 13, 2005 Hr'g Tr. at 180:16-22.
Plaintiffs contest defendant's characterization of counsel's remark. They argue that his position was (and is) that, while PM USA's disclosure would have been sufficient if made in 1971, when "light" cigarettes were first introduced, it is not sufficient now, after 30 years of deceptive marketing. See Pls.' Opp. to PM USA's Mot., at 1 ("PM[ ]USA's purported disclosures
2. Law
The standard for summary judgment has been set forth in Part II.A.2, supra. It is sufficient to reemphasize that summary judgment is appropriate only if there is no genuine issue as to any material fact. The moving party bears the burden of proving that it is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. at 248, 106 S.Ct. 2505.
3. Application of Law to Facts
To prevail on their civil RICO claim, plaintiffs must establish that defendants conducted a scheme to defraud them of money or property and that smokers reasonably relied to their detriment on defendants' misrepresentations. See generally Part III, supra. The crux of plaintiffs' claim is that defendants defrauded consumers by describing certain cigarettes as "light"—implying less damage to health— without disclosing that, when smoked, they delivered no less tar or nicotine than "regular" cigarettes. See, e.g., Sept. 13, 2005 Hr'g Tr. at 192:18-22 ("Had they put nothing on the cigarette, had they not called it lights, then it might be a different story, but they chose a word which by publicly embedded expectation was synonymous with less harmful."). To prevail before trial on all claims after November 2002, PM USA must demonstrate, first, that its disclosures were so widely distributed and so clear that, as a matter of law, no scheme to defraud existed after that date or, second, that no plaintiff could have reasonably relied upon the "lights" descriptor after that date.
Critical in this analysis is context: defendant's recent representations must be viewed in light of the marketing campaigns and public statements of the previous thirty years.
a. Absence of a scheme to defraud
The cases cited by defendant in support of its contention that its recent disclosures demonstrate the absence of a scheme to defraud as a matter of law are inapt. In each of them, a court or a jury found that no misrepresentation had ever been made. See, e.g., Perlman v. Zell, 185 F.3d 850, 854 (7th Cir.1999) (no RICO claim possible where jury found defendant had not committed fraud); Reynolds v. East Dyer Dev. Co., 882 F.2d 1249, 1251 (7th Cir.1989) (affirming grant of summary judgment; no mail or wire fraud possible where plaintiffs had "not alleged or shown that the defendants lied to them—or anybody else"; "mere failure to disclose, absent something more" was insufficient as a matter of law); A. Terzi Prods., Inc. v. Theatrical Protective Union, 2 F.Supp.2d 485, 500 (S.D.N.Y. 1998) (wire fraud claim could not be sustained where plaintiffs alleged "that defendants coerced plaintiffs into entering a labor agreement through threatening and abusive conduct" that "contain[ed] no element of deception whatsoever"); Smith v. Grundy County Nat. Bank, 635 F.Supp. 1071, 1076 (N.D.Ill.1986) (RICO mail fraud complaint properly dismissed where all terms of a financial transaction were disclosed to, and approved by, plaintiffs "in advance").
Here, by contrast, plaintiffs have provided ample support for their allegations of three decades of affirmative misrepresentations and concealment. See Pls.' Cert. Brief. See also Appendix A, supra (detailed factual findings of fraud after nine-month
For example, reasonable jurors might differ as to whether the number of copies of the pamphlets and onserts were sufficient to reach a critical mass of smokers, thus "clearing the air" of any lingering misrepresentations. No evidence has been presented of the geographic breadth of distribution or the reaction of any smoker to the onsert. Similarly, PM USA has provided no evidence of the readership of the newspapers in which its pamphlets were included—were they likely to be seen, or read, by smokers of "light" cigarettes? A rational juror could also believe, as James Morgan, Brand Manager of Marlboro (including Marlboro Lights) from 1969 to 1972, has testified, that:
United States v. Philip Morris, at 2006 WL 2381449, *35.
The same doubts of comprehension exist about the internet disclosures: PM USA claims that its website informed consumers about "light" cigarettes as far back as October 1999, but evidence of the content and style of the information conveyed in the old site pages has not been put before the court. See Def. PM's Mot., Ex. C (website content dated May 23, 2006). The current website contains the same information provided in the newspaper booklets and package onserts, but PM USA has offered no evidence of the number of consumers that visit its website in general or its "low tar" information pages in particular.
Plaintiff counsel's remark in arguments was not a concession that PM USA's disclosures were sufficient to absolve it of liability in 2002, but that they would have been in 1971, before defendants began their fraudulent "health assurance" marketing campaign.
b. Reasonable reliance
Since the sufficiency of PM USA's message is in dispute, it follows that PM USA's contention that plaintiffs could not establish detrimental reliance on a material misrepresentation by PM USA on or after November 2002 is premature. PM USA argues that in light of its repeated disclosures about "light" cigarettes and compensation, it would have been unreasonable as a matter of law for any consumer to have interpreted the "lights" descriptor on PM USA's cigarette packs to carry a safety message after November 2002.
PM USA cites In re ORFA Sec. Litig., 654 F.Supp. 1449, 1465 (D.N.J.1987), to support its position that disclosure of information that allegedly was fraudulently withheld cuts off the time period during which a plaintiff could reasonably rely on the previous misrepresentation. Several barriers prevent the application of In re ORFA to this case.
First, In re ORFA was brought under the securities laws, not RICO. It is not clear that the securities fraud doctrine of "curative disclosure" applies to a case of RICO mail and wire fraud. Second, even assuming that this doctrine does apply, the disclosure in In re ORFA painted an "extremely negative portrait of the defendant's
PM USA Mot., Ex. B at 8 (emphasis supplied). These warnings are somewhat equivocal. Reasonable jurors could disagree about their import. Cf. In re AM International Sec. Litig., 108 F.R.D. 190 (S.D.N.Y.1985) (holding that the class period could not be narrowed because substantial and triable issues of fact remained with respect to defendants' contention that the market was cured). Securities investors, a jury might find, are more likely to follow details of disclosure than lay smokers since the former are trying to protect their investments, while the latter are, in the main, following a habit embedded by addiction.
On the present record, it would be improper to remove these substantial questions of fact about the scope or time limits of the class from jury consideration. See Sirota v. Solitron Devices, Inc., 673 F.2d 566, 572 (2d Cir.1982) (upholding judge's decision to extend securities fraud class period beyond issuance of press release that defendants claimed had cured the market). Whether a plaintiff could have reasonably relied on the implicit health claims in PM USA's marketing in the period after November 2002 is a contested issue of fact to be resolved by the jury.
c. Judicial estoppel
Judicial estoppel prevents a party from asserting a position when (1) the party argued an inconsistent position in a prior proceeding and (2) the prior inconsistent position was adopted by the court in some manner. Bates v. Long Island R.R. Co., 997 F.2d 1028, 1038 (2d Cir.1993). "Judicial estoppel protects the sanctity of the oath and the integrity of the judicial process." Id. at 1037.
As the Supreme Court cautioned in Cleveland v. Policy Management Systems Corp., 526 U.S. 795, 119 S.Ct. 1597, 143 L.Ed.2d 966 (1999), a court must carefully consider the contexts in which apparently contradictory statements are made to determine if there is, in fact, direct and irreconcilable contradiction. See id. at 807, 119 S.Ct. 1597 (representation of complete disability in a Social Security proceeding was not directly contradicted by party's ADA claim that he could perform essential job functions with reasonable accommodation because the former proceeding did not consider the effect that reasonable workplace accommodations would have on the claimant's ability to, work).
Judicial estoppel applies equally to inconsistent positions asserted earlier in the same litigation. See Ergo Science, Inc., v. Martin, 73 F.3d 595, 598 (5th Cir.1996); Cont'l Ill. Corp. v. Comm'r of Internal Revenue, 998 F.2d 513, 518 (7th Cir.1993). Plaintiffs argue that PM USA's November 2002 disclosures are inconsistent with the position adopted by PM USA in response to plaintiffs' motion to preclude PM USA from arguing that "light" cigarettes are safer than regular cigarettes. See Mem. in Supp. of Pls.' Rule 16(c) Mot. (Dkt. No. 128).
Inapplicable is judicial estoppel. PM USA's statements in opposition to
d. Findings on continued increases in nicotine inhaled from "light" cigarettes
It has been recently reported that, in the period during and after the public statements that PM USA relies upon as evidence of the absence of a scheme to deceive the public, nicotine in smoke inhaled by smokers, including those using "light" cigarettes, increased significantly. See Appendix F, infra (Massachusetts Department of Health report). This increase, which might hasten or deepen addiction and make quitting more difficult, is arguably a critical fact never disclosed by any defendant. It appears to be industrywide. A jury might find that this new information supports a conclusion of an ongoing duplicitous scheme. See Part III. E.1.b, supra (fraudulent concealment may toll statute of limitations).
4. Conclusion on Philip Morris' Separate Motion
Plaintiffs' motion for judicial estoppel is denied. Defendant PM USA's motion for summary judgment is denied. PM USA (and any other defendant) will be free to put before the jury evidence of its disclosures in support of its argument that no scheme to defraud existed after November 2002 and that plaintiffs could not have reasonably relied on any implicit health claim in the "lights" descriptor after that date.
Plaintiffs move for summary judgment or, in the alternative, in limine rulings on a variety of defenses used by defendants in other similar litigation in other courts. Because granting any of these motions would prevent the jury from fairly evaluating the complex factual issues in this case, all the motions are denied.
A.
Claiming discovery of new evidence, plaintiffs move pursuant to Rule 60(b) of the Federal Rules of Civil Procedure for relief from a previous order denying their motion for summary judgment on what they describe as defendants'"FTC defense." The motion is denied.
a. FTC action
Pursuant to section 45(a) of title 15 of the Unite States Code, the Federal Trade Commission ("FTC") has jurisdiction over the advertising and testing of cigarettes. See 15 U.S.C. § 45(a)(2) (empowering the FTC to prevent "unfair methods of competition
As described in great detail in Price v. Philip Morris, 219 Ill.2d 182, 186-208, 302 Ill.Dec. 1, 848 N.E.2d 1 (Ill.2005), the FTC regulated the tobacco companies' ability to make health claims about their products in almost every decade since the 1930s through formal administrative complaints, see, e.g., Julep Tobacco Co., 27 F.T.C. 1637 (1938) (company made unsubstantiated health claims for its cigarettes); AMERCAN BRANDS, INC., 1971 WL 128779, 79 F.T.C. 255 (1971) (company claimed its cigarettes were "lower in tar" without "clearly disclosing material tar and nicotine data"); IN RE AMERICAN TOBACO CO., 1995 WL 17012576, 119 F.T.C. 3, 5 (1995) (company claimed consumers would "get less tar by smoking ten packs of Carlton brand cigarettes than by smoking a single pack of the other brands of cigarettes depicted in the ads"); advertising guidelines, see, e.g., 6 Trade Reg. Rep. (CCH) ¶ 39,012 (1988) (FTC Release, 1955) (requiring cigarette manufacturers making claims regarding tar and nicotine yields to substantiate their claims by "competent scientific proof"); 6 Trade Reg. Repo. (CCH) ¶ 39,012.70 (1988) (FTC Release, 1966) (permitting factual statement of milligrams of nicotine or tar, but "no collateral representation . . . as to reduction or elimination of health hazards"); 32 F.R. 11,178 (August 1, 1967) (prescribing conditions for "FTC Method" of testing, adopted as the sole acceptable method of measuring tar and nicotine); investigations, see, e.g., In re Lorillard, 1978 WL 206080, 92 F.T.C. 1035 (1978) (after tobacco company suggested variation in test method to prevent blocking of ventilation holes, FTC reconsidered and then adhered to its existing methods); enforcement proceedings, see, e.g., Federal Trade Comm'n v. Brown & Williamson Tobacco Corp., 778 F.2d 35 (D.C.Cir.1985) (agency sought injunction prohibiting manufacturer from advertising its Barclay cigarettes as "1 mg tar" and "99% tar free"); consent orders, see, e.g., IN RE AMERICAN TOBACCO CO., 1995 WL 17012576, 119 F.T.C. 3 (company agreed to abandon Carlton advertising campaign that was the source of complaint described supra); IN RE LOILLARD, 1972 WL 128702, 80 F.T.C. 455 (1972) (companies agreed to FTC demand that they display in advertising the health warning already required by Congress on cigarette packages); and voluntary agreements, see, e.g., FTC, Report to Congress, Dec. 31, 1970, attached to Defs.' Opp. to Pls.' Mot. on FTC Defense, Ex. 78, at 18-19 (describing approval of tobacco industry plan "to disclose tar and nicotine content in cigarette advertising on a voluntary basis"). See generally Price, 219 Ill.2d at 186-208, 302 Ill.Dec. 1, 848 N.E.2d 1.
In Price, a suit under state fraud law making allegations similar to that in the present case, the Illinois Supreme Court found that consent orders issued in 1971 and 1995 restricting "use of the words `low,' `lower,' or `reduced' or like qualifying terms" "specifically authorize[d] all United States tobacco companies to utilize" such terms, including "light," "so long as the descriptive terms are accompanied by a clear and conspicuous disclosure of the tar' and nicotine content[.]" It held that plaintiffs' suit was thus barred under a state statute immunizing defendants against consumer fraud claims based on actions "specifically authorized by law administered by any regulatory body or officer acting under statutory authority of this State or the United States." Price, 219 Ill.2d at 196, 265-66, 302 Ill.Dec. 1, 848 N.E.2d 1.
There is no analogous provision in RICO. Yet evidence that the FTC approved defendants' representations might
b. Procedural history
During the first round of briefing in this litigation, plaintiffs moved pursuant to Rule 56 of the Federal Rules of Civil Procedure and Rule 104(a) of the Federal Rules of Evidence for an order that there was no genuine issue of material fact as to their following contentions: (1) that the Federal. Trade Commission ("FTC") did not require defendants to disclose tar and nicotine levels in advertising and packaging; (2) that the FTC did not approve the "lights" descriptor; and (3) that the FTC did not define the "lights" descriptor. Alternatively, plaintiffs requested that the court preclude defendants from raising as an affirmative defense that they were acting pursuant to FTC regulation in using the "lights" descriptor or disclosing tar and nicotine information in advertising or packaging, or introducing evidence to that effect. They contended that the FTC has never taken an official position regarding the "lights" descriptor and that it has not recognized, approved of, or defined this descriptor.
Plaintiffs' motion was denied, because:
Mem. & Order on Pls.' Mot. Re "FTC Defense" of Sept. 26, 2005 ("FTC Defense Order"), at 2.
Plaintiffs offer deposition testimony of David Beran, Marketing Director of Philip Morris, and a designated 30(b)(6) witness, in support of their motion for relief from this previous order. See Fed. R Civ. P. 30(b)(6) (when a party subpoenas a corporation, the corporation "shall designate one or more officers, directors, or managing agents, or other persons who consent to testify on its behalf . . ."). Mr. Beran was deposed after the court's ruling that further discovery was necessary to develop a record sufficient to support decision on the dispositive motions.
Emphasized by plaintiffs is the following passage of the deposition:
Deposition of David Beran, Schwab v. Philip Morris, May 25, 2006 ("Beran Dep."), at 348:6-348:19.
In opposition, defendants maintain that 1) the testimony is not "new" and 2) the testimony is consistent with their position
2.. Law
Plaintiffs look to the wrong source for the district court's authority to modify interlocutory orders such as this one.
Rule 60(b) provides:
Fed.R.Civ.P. 60(b). By its terms, the rule applies only to a "final judgment, order, or proceeding." A denial of summary judgment is not a final order. See United States v. 228 Acres, 916 F.2d 808, 811 (2d Cir.1990) ("An order that denies summary judgment or grants partial summary judgment . . . is nonfinal."). Rule 60(b) is inapplicable by its terms.
Nevertheless, relief is possible. Rule 60(b) does not affect the district court's inherent power to modify its own interlocutory orders.
Fed.R.Civ.P. 60(b) advisory committee notes (1946). See also John Simmons Co. v. Grier Bros. Co., 258 U.S. 82, 88, 42 S.Ct. 196, 66 L.Ed. 475 (1922) ("If [an order] be only interlocutory, the court at any time before final decree may modify or rescind it."); Ideal Toy Corp. v. Sayco Doll Corp., 302 F.2d 623 (2d Cir.1962) ("Of course, absent an appeal, a district court has complete power over its interlocutory orders."); Project Strategies Corp. v. Nat'l Commc'ns Corp., No. CV-94-4925, 1995 WL 669655, at *2 (E.D.N.Y. Oct. 27, 1995) (reconsidering issuance of temporary restraining order as a matter of discretion).
3. Application of Law to Facts
Though possible, relief from the previous order denying plaintiffs' motion for summary judgment on defendants'"FTC defense" is unwarranted. The issue should be adjudicated before the jury as part of the central, common questions relating to defendants' intentions to deceive.
a. "New" evidence
Defendants' first objection—that the testimony is not "new evidence" under Rule 60(b)—is not well taken. Because Rule 60(b) does not limit the court's power to revise its interlocutory orders, the testimony's novelty is immaterial. These proceedings were referred to the magistrate judge for the purpose of completing discovery. See Order of Nov. 7, 2005, at 1 ("Full discovery is to proceed under the control of the magistrate judge, who is respectfully requested to ensure that, as speedily as practicable, all parties have a fair opportunity to gather the evidence necessary for the disposition of the pending motions on class certification and dismissal."). Additional depositions of experts and 30(b)(6) witnesses were permitted with the expectation that they would inform the decision on the dispositive motions, including those that were denied. See, e.g., Mem. & Order on Stat. of Limitations, 2005 WL 2467766, at *7 (E.D.N.Y. Oct. 6, 2005) (denying defendants' motion for summary judgment;
The court gives Mr. Beran's deposition testimony full consideration. It does not warrant a change in the court's ruling.
b. Defendants' stated position
Defendants' second objection is fatal to the motion. Defendants' position in this litigation has been from the start that the FTC authorized, directly or indirectly, defendants' conduct by withdrawing proposed Trade Regulation Rules ("TRRs") that would have required the disclosure of tar and nicotine yields; entering into consent decrees with the tobacco industry that permitted the use of "qualifying terms" such as "low" tar, provided those claims were substantiated by FTC measurements; investigating the use of the "lights" descriptor and, deciding not to take any action; and formally defining which cigarettes could be considered "low tar." Some evidence supports this position, see supra, though a rational juror could also conclude that the FTC did not, by action or inaction, "approve" the use of the "lights" descriptor, but merely refrained from banning it when defendants acceded to some of the FTC's demands. Cf. Price, 219 Ill.2d at 192, 302 Ill.Dec. 1, 848 N.E.2d 1 (quoting the chairman of the FTC's explanation for the agency's preference for self-regulation over direct intervention: "Trade regulation rules, if contested in the courts, might take a long time to become effective. A workable voluntary plan by the industry could be put into effect immediately.").
Mr. Beran's remark that the "lights" descriptor was introduced by Philip Morris and continues to be used "by practice, not by rule," is consistent with both plaintiffs' and defendants' positions. As the court indicated in its previous ruling on the topic:
FTC Defense Order at 2. The deposition testimony adds to the welter of evidence on tobacco industry-FTC relations; it does not resolve it as a matter of law. Cf. Fed.R.Civ.P. 56 (summary judgment is appropriate only when the record "show[s] that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law").
To the extent that plaintiffs expand their motion to include a request for a ruling that defendants were never "required" to use the "lights" descriptor, that request is also denied. Defendants have not contended in this litigation that the FTC mandated use of the descriptor. See, e.g., Def. Philip Morris USA Inc.'s Resp. to Pls.' Third Request for Admissions, at Request No. 13-14 (admitting that "the FTC does not mandate the use of the descriptor `lights' for any cigarette advertising" and that "the FTC does not mandate the use of the descriptor `lights' for any cigarette packaging"). In limine rulings are inappropriate on subjects not in controversy.
Plaintiffs' motion for reconsideration of the previous order denying summary judgment is granted. The previous decision is adhered to. The interaction between the FTC and defendants is a relevant issue in the case; the jury should hear all evidence pertinent to it.
Plaintiffs move for summary judgment on, or in the alternative for in limine orders restricting, defendants' compensation defense. The motion and alternative motion are denied. The issues respecting compensation are central to the case and should be aired before a jury.
Compensation refers to the techniques used by smokers to increase their intake and retention of tar and nicotine in cigarettes. They can do this, among other ways, by inhaling smoke more deeply into their lungs and holding it there longer; covering up the holes in cigarette papers designed to reduce ingestion of tar; smoking more cigarettes; and smoking more of each cigarette to reduce the filtering action of the -unsmoked tobacco. Whether and when smokers were aware of the effect of these techniques is strongly contested.
Plaintiffs seek immediate relief in the form of an order that there is no genuine issue of material fact as to the following: (1) that smokers did not understand the phenomenon of compensation; (2) that, inconsistent with an understanding of compensation, smokers believed that "light" cigarettes were healthier than regular cigarettes; (3) that defendants intentionally concealed information concerning compensation from smokers; (4) that defendants designed cigarettes that exploited smokers' tendency to compensate; and (5) that whether compensation is "complete" is immaterial to the viability of a fraud claim. Alternatively, plaintiffs request an order precluding defendants from introducing evidence (1) that the public was aware of the phenomenon of compensation and (2) relying on the theory that no fraud claim can exist unless compensation was "complete."
Defendants strongly urge that the compensation issue is relevant: the phenomenon was well known to smokers of "light" cigarettes, they contend, and thus there was no fraud.
Judgment as a matter of law cannot be granted on any of these issues.
(1) Plaintiffs' assertion that smokers must be deemed, as a matter of law, not to have known about compensation is based largely on defendants' internal documents. They cite, for example, a May 6, 1992 BATCo report titled, "Topics in Smoking and Health `Bible,'" which states:
Bates No. 500887606-7607, Ex. 19 to Pls.' Mot. on Compensation Defense. See also R.J. Reynolds, "A Gap in Present Cigarette Product Lines and an Opportunity to Market a New Type of Product," Bates No. 500790782 ("Given a cigarette that delivers less nicotine than he desires, the smoker will subconsciously adjust his puff volume and frequency, and smoking frequency. . . ."). While such documents are
Defendants offer a number of sources suggesting that at least some smokers knew of compensation. See Defs.' Opp. to Pls.' Mot. on Compensation Defense, Exs. 27-47 (including Surgeon General's Reports, magazine and newspaper articles, and scientific studies published from the 1930s to the 1990s addressing compensation). Whether defendants' persistent marketing efforts overwhelmed these occasional reports is a matter for the jury.
(2) Similarly, defendants' internal marketing plans are not sufficient to remove from jury consideration the issue of consumer beliefs about the meaning of the "lights" descriptor. Documents such as the following 1977 Brown & Williamson Internal Marketing Study strongly suggest that defendants intended to assuage smokers' fears of health risks:
Bates No. 775036043-44, Pls.' Mot. on Compensation Defense, Ex. 28 (capitals in original). See also BATCo Memorandum, April 14, 1977, Bates No. 100427794, Pls. Mot. on Compensation Defense, Ex. 30 ("All work in this areas should be directed towards providing consumer reassurance about cigarettes and the smoking habit. . . . [A]dvertising for low delivery or traditional brands should be constructed . . . so as not to provoke anxiety about health, but to alleviate it . . ."). Whether smokers in fact perceived "light" cigarettes as healthier than regular cigarettes, however, remains subject to proof and argument before the jury.
(3) There is strong evidence that defendants intentionally concealed information about compensation from smokers. See United States v. Philip Morris, Appendix A at 449 F.Supp.2d at 801-39, supra. Yet at least one of the defendants has shared its research information with public health officials and governmental agencies. See 449 F.Supp.2d 236-38. Critical at trial will be the timing and extent of such disclosures, since they may impact on the duration and scope of any scheme to defraud and the possibility of proper conduct by some defendants. Jury questions are presented.
(4) Plaintiffs support their motion for partial summary judgment on defendants' alleged design of cigarettes that exploited compensation subtly with internal documents describing possible products and debating company policy towards these hypothetical products. See, e.g., R.J. Reynolds interoffice memorandum of March 4, 1982, Bates No. 503670658-59 (discussing the "next generation" of cigarettes that would yield no tar under the FTC method but 20-40 mg of tar when smoked by a human; proposing "to provide design sketches or prototypes"). While discomfiting to defendants, these, too, are insufficient facts justifying judgment as a matter of law that such products were actually produced and marketed.
(6) Plaintiffs opposed defendants' view, expressed at the September 13, 2006 hearing, that only compensation that exists with respect to an individual cigarette can form the basis of an injury—that is to say, if smoking a single "light" did not satisfy a smoker's need for nicotine, and he picked up a second or third cigarette to make up the deficiency, ingesting more tar than he would have from a single regular cigarette, the smoker would have been on notice of the change and there could be no fraud. Tr. of Sept. 13, 2006 at 124:24-125:17. Defendants appear to have known that nicotine's addictive properties might lead to compensation by smokers covering up ventilation holes to inhale more smoke, holding the smoke in the lungs longer and deeper, smoking more of any one cigarette, and smoking a greater number of cigarettes. All these techniques were used to compensate for the lower nicotine content of "light" cigarettes—and in the process, exposed smokers to levels of tar greater than or equal to that released by regular cigarettes. Defendants' per-cigarette argument is one the jury may, but is not required to, consider in connection with compensation.
The motions are denied.
Plaintiffs seek an order that there is no genuine issue of material fact as to the following: that the defendants did not act in compliance with the directives of the public health community in designing, manufacturing and marketing defendants' "low tar" products. Alternatively, plaintiffs request that the court preclude defendants from introducing evidence to contradict that allegation. It is their contention that defendants' claim of compliance with the public health community's views is contradicted by their failure to adhere to the public health community's desires with respect to "low tar" or "light" cigarettes.
Defendants contend that they acted in compliance with the public health community's recommendations in developing a Federal Trade Commission-measured low tar and low nicotine cigarette and that they did not withhold relevant information regarding health issues from the FTC or the public health community. Defendant Liggett Group, Inc. opposes on the ground that plaintiffs' motions are particularly misplaced with respect to Liggett, which has been more forthcoming about smoking health issues than other defendants.
The evidence of the relationship among defendants, plaintiffs, various components of the health community, and governmental agencies on smoking health issues is extraordinarily extensive and covers many years. Compare United States v. Philip Morris, Appendix A at 449 F.Supp.2d at 499-507, supra (finding defendants misled governmental agencies and public health officials) with Defs.' Mem. in Opp. to Pls.' Mot. on Public Health Defense, Exs. 3-8 (various plaintiff and defense experts testifying that a number
The motion is denied.
Plaintiffs seek an order that there is no genuine issue of material fact as to the following: that the defendants never intended the "light" or "lights" descriptor to refer to taste. Alternatively, plaintiffs request that the court preclude defendants from introducing evidence that the meaning of the "light" or "lights" descriptor was primarily a reference to the taste of defendants' products. Their contention is that the word "lights" was intended to convey to the smoker that "light" cigarettes were not as harmful to health as "regular" cigarettes.
Defendants' view is that the evidence demonstrates that they intended "lights" to refer to a lighter-tasting cigarette and that many consumers understood this.
For the reasons set out in Part VI.B, supra, the issue of smokers' beliefs cannot be resolved on summary judgment. Evidence of consumers' perceptions of the meaning of the "lights" descriptor is necessary to prove or controvert their reliance on defendants' representations and will be received. See also the discussion of collateral estoppel in Part IV, supra.
The motion is denied.
Critical to plaintiffs' case is certification as a class action. No other method of aggregation of tens of millions of smokers' claims is practicable. The small amount of possible recovery for each smoker could not justify the expensive and time-consuming pretrial and trial procedures required. As indicated below, an analysis of the facts and law supports certification over defendants' objections.
In order to certify a class action, Rule 23 of the Federal Rules of Civil Procedure requires plaintiffs to meet two major requirements. First, they must satisfy all four of the conditions of Rule 23(a) and, second, they must demonstrate that their action fits within one of the three categories of Rule 23(b). Amchem Prods., Inc. v. Windsor, 521 U.S. 591, 614, 117 S.Ct. 2231, 138 L.Ed.2d 689, (1997); In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 132-133 (2d Cir.2001).
1. Burden of Proof
Plaintiffs bear the burden of proof in showing that these requirements have been met. Amchem Prods., 521 U.S. at 614, 117 S.Ct. 2231; Caridad v. Metro-North Commuter R.R., 191 F.3d 283, 291 (2d Cir.1999). The Court of Appeals for the Second Circuit still apparently holds that they need not show that they are likely to prevail on the merits of their claim at this stage in the litigation. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 178, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974) (internal citation and quotation marks omitted) ("In determining the propriety of a class action, the question is not whether the plaintiff or plaintiffs have stated a cause of action or will prevail on the merits, but rather whether the requirements of Rule
A "rigorous analysis" is required to determine that the Rule 23 requirements have been met. See Gen. Tele. Co. of Southwest v. Falcon, 457 U.S. 147, 161, 102 S.Ct. 2364, 72 L.Ed.2d 740 (1982); In re Initial Pub. Offering Sec. Litig., 227 F.R.D. 65, 93 (S.D.N.Y.2004) ("In sum, under the binding caselaw in this Circuit, a district court may not simply accept the allegations of plaintiffs' complaint as true. Rather, it must determine, after a `rigorous analysis,' whether the proposed class comports with all of the elements of Rule 23. In order to pass muster, plaintiffs— who have the burden of proof at class certification—must make `some showing.' That showing may take the form of, for example, expert opinions, evidence (by document, affidavit, live testimony, or otherwise), or the uncontested allegations of the complaint.").
"Evaluation of many of the questions entering into determination of class action questions is intimately involved with the merits of the claims," In re Initial Pub. Offering Sec. Litig., 227 F.R.D. at 91, and sometimes requires the court to "look past the pleadings" and consider evidence relevant to class certification even if that evidence is also related to the merits of the case. Castano v. American Tobacco Company, 84 F.3d 734, 744 (5th Cir.1996). "Both the Supreme Court and the Second Circuit, however, have suggested that requiring a plaintiff to establish the elements of Rule 23—especially when those elements are `enmeshed' in the merits—by a preponderance of the evidence would work an injustice." In re Initial Pub. Offering Sec. Litig., 227 F.R.D. at 92. For example, when considering expert evidence in a class certification motion, the court "must ensure that the basis of the expert opinion is not so flawed that it would be inadmissible as a matter of law," but should not consider decisive "whether the evidence will ultimately be persuasive." Visa Check, 280 F.3d at 135. Expert evidence thus far presented meets this test. See Part VIII.F.1, infra.
The Supreme Court has recognized that many of the Rule 23(a) and (b) requirements are not distinct from one another, but rather "merge" when considered in light of the overall purposes of Rule 23. Falcon, 457 U.S. at 158 n. 13, 102 S.Ct. 2364 (1982). See also Marisol A. v. Giuliani, 126 F.3d 372, 376 (2d Cir. 1997). Ultimately, courts have broad discretion in determining whether to certify a class and are encouraged to construe the requirements of Rule 23 liberally in order to effectuate its overall purpose. See, e.g., Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 222 F.3d 52 (2d Cir.2000); Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 176, 179 (2d Cir.1990); Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 563 (2d Cir.1968).
2. Purpose of Rule 23
In interpreting Rule 23, the Second Circuit Court of Appeals has explained that central to its ameliorative purpose is protection of small claims through aggregation.
Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 560 (2d Cir.1968).
Use of class actions to vindicate the rights of, and provide remedies for, small claimants who might otherwise not be able to utilize the judicial system is favored. See Amchem Prods., 521 U.S. at 617, 117 S.Ct. 2231 ("The policy at the very core of the class action mechanism is to overcome the problem that small recoveries do not provide the incentive for any individual to bring a solo action prosecuting his or her rights. A class action solves this problem by aggregating the relatively paltry potential recoveries into something worth someone's (usually an attorney's) labor.") (internal quotation marks omitted).
The Supreme Court recognized that protecting small claims was especially important in class actions certified under Rule 23(b)(3), for which "the Advisory Committee had dominantly in mind vindication of the rights of groups of people who individually would be without effective strength to bring their opponents into court at all." Amchem Prods., 521 U.S. at 617, 117 S.Ct. 2231 (internal quotation marks omitted). See also Eisen v. Carlisle and Jacquelin, 417 U.S. at 186, 186 n. 8, 94 S.Ct. 2140 (Douglas, J., joined by Brennan, J. and Marshall, J., concurring) ("The class action is one of the few legal remedies the small claimant has against those who command the status quo. . . . The matter touches on the issue of the credibility of our judicial system. Either we are committed to make reasonable efforts to provide a forum for adjudication of disputes involving all our citizens—including those deprived of human rights, consumers who overpay for products because of antitrust violations and investors who are victimized by insider trading or misleading information—or we are not. There are those who will not ignore the irony of courts ready to imprison a man who steals some goods in interstate commerce while unwilling to grant a civil remedy against the corporation which has benefited, to the extent of many millions of dollars, from collusive, illegal pricing of its goods to the public. . . . When the organization of a modern society, such as ours, affords the possibility of illegal behavior accompanied by widespread, diffuse consequences, some procedural means must exist to remedy—or at least to deter—that conduct.") (internal citation and quotation marks omitted).
Congress in effect approved the class action format as a means of promoting litigation efficiency by consolidating a large number of small claims into a single convenient forum, preventing both the courts and the parties from being forced to litigate the same issues multiple times. See Gen. Tel. Co. of Southwest v. Falcon, 457 U.S. at 155, 102 S.Ct. 2364 (explaining that "the class-action device saves the resources of both the courts and the parties by permitting an issue potentially affecting every [class member] to be litigated in an economical fashion under Rule 23"); American Pipe & Constr. Co. v. Utah, 414 U.S. 538,
Although Rule 23 was designed to promote judicial efficiency and help vindicate the rights of small claimants, it does not sacrifice the due process rights of absent class members who would be bound by the adjudication despite their lack of active participation. Many of the requirements of Rule 23, as well as the discretion granted district courts in administering the proceedings, are designed to ensure that absent class members are aware of, and adequately represented in, the litigation. These over-arching purposes cause many of Rule 23's requirements to run together. Falcon, 457 U.S. at 158 n. 13, 102 S.Ct. 2364. Judge Schiendlin of the Southern District of New York observed:
In re Initial Pub. Offering Sec. Litig., 227 F.R.D. 65, 89-90 (S.D.N.Y.2004) (emphasis in original) (internal citations and quotation marks omitted).
As already noted, Rule 23 does not mandate that each requirement have a separate and distinct sphere of operation, since rigid compartmentalization may divert the court from a proper application of the rule as a whole. See, e.g., Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 222 F.3d 52, 61 (2d Cir.2000) (applying the adequacy-of-representation requirement with an eye for typicality concerns and disavowing an overly-technical or "myopic" view of Rule 23(a)(4)'s requirements); Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147, 163-167 (2d Cir.2001) (adopting an ad hoc discretionary approach to Rule 23(b)(2), rather than a strict bright-line standard, in order to effectuate the purposes and fairness of the rule). It is for this reason that the Court of Appeals for the Second Circuit has repeatedly advised district courts to interpret Rule 23 liberally to effectuate its purpose. See Korn v. Franchard Corp., 456 F.2d 1206, 1209 (2d Cir.1972); Green v. Wolf Corp., 406 F.2d 291, 298 (2d Cir.1968); In re Initial Pub. Offering Sec. Litig., 227 F.R.D. at 89-90; In re Lloyd's Am. Trust Fund. Litig., No. 96-Civ-1262, 1998 WL 50211, at *5 (S.D.N.Y. Feb. 6, 1998) ("The Second Circuit has directed district courts to apply Rule 23 according to a liberal rather than a restrictive interpretation."); McNeill v. New York City Hous. Auth., 719 F.Supp. 233, 252 (S.D.N.Y.1989) ("Rule 23 is given liberal rather than restrictive construction, and courts are to adopt a `standard of
Rule 23(a) provides four threshold criteria which must be met in order for a class to be certified:
Fed.R.Civ.P. 23(a). These requirements are generally referred to as numerosity, commonality, typicality, and adequacy of representation. See Gen. Tel. Co. v. EEOC, 446 U.S. 318, 330, 100 S.Ct. 1698, 64 L.Ed.2d 319 (1980).
I. Numerosity
a. Law
The numerosity clause of Rule 23(a)(1) requires the prospective class be so numerous that joinder is "impracticable." Fed.R.Civ.P. 23(a)(1). "Impracticability does not mean impossibility of joinder, but refers to the difficulty or inconvenience of joinder." In re Initial Pub. Offering Sec. Litig., 227 F.R.D. at 86. See also Robidoux v. Celani, 987 F.2d 931, 935 (2d Cir.1993). The Court of Appeals for the Second Circuit has held that a prospective class of forty or more raises a presumption of numerosity. See Consol. Rail Corp. v. Hyde Park, 47 F.3d 473, 483 (2d Cir.1995); Cromer Fin. Ltd. v. Berger, 205 F.R.D. 113 (S.D.N.Y. 2001). Plaintiffs need not establish the precise number of class members in order to satisfy the numerosity requirement, as long as they reasonably estimate the number as substantial. See Robidoux, 987 F.2d at 935; McNeill v. New York City Hous. Auth., 719 F.Supp. 233, 252 (S.D.N.Y.1989). They may "rely on reasonable inferences drawn from the available facts" in order to make that approximation. McNeill, 719 F.Supp. at 252. See also Port Auth. Police Benevolent Ass'n v. Port Auth., 698 F.2d 150 (2d Cir.1983); Kirkland v. New York State Dep't of Corr. Servs., 520 F.2d 420, 427 (2d Cir.1975); Dura-Bilt Corp. v. Chase Manhattan Corp., 89 F.R.D. 87, 93 (S.D.N.Y.1981). Important are "judicial economy arising from the avoidance of a multiplicity of actions, geographic dispersion of class members, financial resources of class members, the ability of claimants to institute individual suits, and requests for prospective injunctive relief which would involve future class members." Robidoux, 987 F.2d at 936.
b. Application of law to facts
Plaintiffs have shown that the instant class is so numerous that joinder is impracticable, thus satisfying Rule 23(a)(1). Though plaintiffs do not know the exact size of the class, it is reasonably believed to number in the tens of millions. The class members are widely-dispersed, being resident in all fifty states.
2. Commonality
a. Law
The commonality requirement of Rule 23 necessitates a showing that the prospective class members share common questions of law or fact. Fed.R.Civ.P. 23(a)(2). This requirement is satisfied where the "claims of all proposed class members derive from the same policies and procedures, and are based on the same legal theories." McNeill, 719 F.Supp. 233,
One method of showing factual commonality is to allege a "common course of conduct" which will necessarily involve questions of law or fact common to the class. Harris v. Palm Springs Alpine Estates, Inc., 329 F.2d 909, 914 (9th Cir. 1964). See also Marisol A. v. Giuliani, 126 F.3d 372, 377 (2d Cir.1997); Korn v. Franchard Corp., 456 F.2d 1206, 1213 (2d Cir.1972); In re WorldCom, Inc. Secs. Litig., 219 F.R.D. 267, 280 (S.D.N.Y.2003).
Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975) (citing Green, 406 F.2d at 298). See also In re Baldwin-United Corp. Litig., 122 F.R.D. 424, 426 (S.D.N.Y.1986) ("The nub of plaintiffs' claims is that material information was withheld from the entire putative class in each action, either by written or oral communication. Essentially, this is a course of conduct case, which as pled satisfies the commonality requirement of Rule 23."); In re Initial Pub. Offering Sec. Litig., 227 F.R.D. at 87 ("In general, where putative class members have been injured by similar material misrepresentations and omissions, the commonality requirement is satisfied."). These decisions are consistent with the view of the Advisory Committee on the 1966 Amendments to Rule 23 that "a fraud perpetrated on numerous persons by the use of similar misrepresentations may be an appealing situation for a class action, and it may remain so despite the need, if liability is found, for separate determination of the damages suffered by individuals within the class." Fed.R.Civ.P. 23(b)(3) advisory committee notes (1966).
Allegations of a conspiracy implicating purposeful conduct by a defendant may establish liability through common legal and factual questions about the existence, scope, and effect of the alleged conspiracy. See Eisen v. Carlisle & Jacquelin, 391 F.2d 555 (2d Cir.1968); In re Playmobil Antitrust Litig., 35 F.Supp.2d 231 (E.D.N.Y.1998).
The commonality requirement should not be confused with the predominance requirement of Rule 23(b)(3), described infra, sometimes a "more demanding" standard. Moore v. PaineWebber, Inc., 306 F.3d 1247, 1252 (2d Cir.2002). While subsection (b)(3) requires the court to weigh common issues against individual issues in deciding which predominate, commonality only requires that common issues of law or fact exist:
Blackie, 524 F.2d at 904 n. 19. See also Moore, 306 F.3d at 1252; Korn, 456 F.2d at 1210 (holding that commonality was satisfied, regardless of whether reliance on alleged misrepresentations constituted a common question, and if not, whether it predominated); Schaefer v. Overland Express Family of Funds, 169 F.R.D. 124, 128 (S.D.Cal.1996) (finding that issues of "individual reliance could vary without destroying the commonality").
b. Application of law to facts
The common issues concerning the liability of the defendants that are presented in this action are substantial and satisfy the requirement of Rule 23(a)(2). Plaintiffs allege both a common course of conduct: the deliberate misleading of the public concerning the relative health risks of "light" cigarettes through significant and widespread advertising campaigns; and a conspiracy: the collusion between the various defendant companies in perpetrating this alleged fraud through many predicate acts committed by all of them. These allegations would comprise the source of defendants' liability under RICO and would be established by the same facts and evidence for each plaintiff, i.e., by generalized proof of marketing and knowledge of defendants. More specifically, plaintiffs have alleged a list of common questions of law and fact, including:
Were plaintiffs' claims to be pursued individually, these questions could be relitigated possibly millions of times, requiring an incredibly wasteful expenditure of time, effort, and resources by both the court and the various parties, probably resulting in inconsistent outcomes. In light of the relatively small value of individual claims, none of the members of the class individually has the wherewithal or interest to conduct individual litigation against these defendants. For example, an individual one-pack-a-day smoker over
3. Typicality
a. Law
Claims or defenses of the representative party or parties are required to be typical of those of the prospective class. Fed.R.Civ.P. 23(a)(3). This requirement tends to "merge" with the commonality requirement, since both "serve as guideposts for determining whether under the particular circumstances maintenance of a class action is economical and whether the named plaintiff's claim and the class claims are so interrelated that the interests of the class members will be fairly and adequately protected in their absence." Falcon, 457 U.S. at 158 n. 13, 102 S.Ct. 2364. See also Marisol A. v. Giuliani, 126 F.3d 372, 376 (2d Cir.1997). Typicality "does not require that the factual background of each named plaintiff's claim be identical to that of all class members" but rather that "the disputed issue of law or fact occupy essentially the same degree of centrality to the named plaintiff's claim as to that of other members of the proposed class." Caridad, 191 F.3d at 291 (internal citation and quotation marks omitted). See also McNeill, 719 F.Supp. at 252; Dura-Bilt, 89 F.R.D. at 99 n. 12. Like commonality, the typicality requirement is satisfied "if the claims of the named plaintiffs arise from the same practice or course of conduct that gives rise to the claims of the proposed class members. . . . "Marisol A., 929 F.Supp. at 691. See also Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147, 155 (2d Cir.2001).
i. Unique defenses
Typicality may be satisfied despite some disparity in the facts, defenses, or damage calculations of the representative plaintiffs and the rest of the class. See Robidoux, 987 F.2d at 937. Disparities that create unique defenses to some members of the putative class may make class certification inappropriate if they are likely to significantly divert the focus of the class litigation. See Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 903 F.2d 176, 180 (2d Cir.1990). Because the concern is with the "danger that absent class members will suffer if their representative is preoccupied with defenses unique to it[,)" this inquiry may be framed as an impediment to either typicality or adequacy-of-representation. Id. Under either framework, the test is "whether the defenses will become the focus of the litigation, overshadowing the primary claims and prejudicing other class members." In re Initial Pub. Offering Sec. Litig., 227 F.R.D. 65, 87 (S.D.N.Y.2004). The unique defense must be serious and likely to sidetrack the litigation to the detriment of the entire class in order to defeat typicality. See, e.g., Langner v. Brown, No. 95-Civ-1981, 1996 WL 709757 (S.D.N.Y. Dec. 10, 1996) (certifying a major shareholder and former insider as the class representative even though he might be subject to some unique defenses); Kronfeld v. Trans World Airlines, Inc., 104 F.R.D. 50, 53 (S.D.N.Y. 1984) (finding that a representative's reliance on a third party to purchase stock at
ii. Subclasses
Where the disparity among claims and defenses is substantial, subclassing may permit the class action to go forward. See Marisol A. v. Giuliani, 126 F.3d 372, 378 (2d Cir.1997) (affirming order of class certification but remanding for the district court to consider creating additional subclasses to reflect groups of plaintiff children with "separate and discrete legal claims pursuant to particular federal and state constitutional, statutory, and regulatory obligations of the defendants"). Subclassing should not be resorted to unless it serves a necessary purpose since it adds to the cost and complexity of a class action.
b. Application of law to facts
The claims of the proposed plaintiffs are typical of those of the class when evaluated under the Rule 23(a)(3) standard. Typicality requires that a class representative "have the incentive to prove all the elements of the cause of action which would be presented by the individual members of the class were they initiating individualized actions." In re NASDAQ Market-Makers Antitrust Litig., 172 F.R.D. 119, 126 (S.D.N.Y.1997). Though the specific factual circumstances for the proposed plaintiffs may not be identical to those of everyone in the million-plus member putative class, a virtually impossible condition, they share the common traits that define the class: arguably, they purchased "light" cigarettes under the reasonable belief in defendants' knowingly false representations that they were a safer alternative to regular cigarettes which would deliver less tar and nicotine.
Unfounded is defendants' objection to the aggregation of the many brands of "light" cigarettes into one suit. Plaintiffs' expert reports appear to show sufficiently that the marketing of all "light" cigarettes was characterized by certain common advertising techniques including, but not limited to, the use of the "lights" descriptor. See, e.g., Expert Report of Richard Pollay, Part VIII.F.1.m; Monograph 13, Chapter 7, in Appendix E, infra. Defendants' argument that class treatment is inappropriate because the marketing campaigns varied too widely to demonstrate a common scheme assumes what it seeks to prove.
Members of the class make identical legal and factual assertions regarding defendants' conduct concerning the alleged collusion and conspiracy, the basis of their liability for mail and wire fraud. To recover for themselves, proposed plaintiffs would need to prove the same "common questions" that would entitle the entire class to relief. Proposed plaintiffs allege the same type of injury from defendants' alleged conduct: that they were fraudulently induced to purchase defendants' "light" cigarettes. Whether that injury suffices for recovery under RICO should be decided by the jury on its merits, with the same consequences for both the proposed representative plaintiffs and the absent class members. There is sufficient typicality to induce the proposed plaintiffs to adequately represent the interests of absent class members in this litigation. No basis for subclassing has been shown as to plaintiffs or as to defendants. The conduct on both sides cannot, at this stage of the litigation, be said to differ among the parties on any appropriate method of classification.
a. Law
Rule 23(a)(4) requires that the representative parties will fairly and adequately protect the interests of the prospective class. Fed.R.Civ.P. 23(a)(4). The Advisory Committee for the 1966 Amendments and the courts have expressed particular concern regarding adequacy of representation because any judgment conclusively determines the rights of absent class members. See, e.g., Eisen x. Carlisle and Jacquelin, 391 F.2d 555, 562 (2d Cir.1968) (citing Hansberry v. Lee, 311 U.S. 32, 61 S.Ct. 115, 85 L.Ed. 22 (1940), for the premise that fundamental due process prevents a decision from binding class members if their interests were not adequately represented). The adequacy-of-representation requirement tends to "merge" with the commonality and typicality requirements; commonality and typicality of the claims ensure that as class representatives advance their own interests, they will also advance the interests of the absent class members, serving as adequate representation. Falcon, 457 U.S. at 158 n. 13, 102 S.Ct. 2364. See also McNeill, 719 F.Supp. at 252 (citing Dura-Bilt Corp., 89 F.R.D. at 93).
"The question of whether the named plaintiffs can fairly and adequately represent the class is one `committed to the sound discretion of the district court.'" County of Suffolk v. Long Island Lighting Co., 710 F.Supp. 1407, 1413 (E.D.N.Y. 1989), aff'd, 907 F.2d 1295 (1990) (quoting Malchman v. Davis, 761 F.2d 893, 899 (2d Cir.1985)). To determine that representation is adequate, a plaintiff must meet two basic standards: class representatives and members must not have interests antagonistic to one another; and counsel for the prospective class must be qualified, experienced, and generally able to conduct the litigation. See In re Joint Eastern & Southern Dist. Asbestos Litig., 78 F.3d 764, 778 (2d Cir.1996) (citing In re Drexel Burnham Lambert Group, Inc., 960 F.2d 285, 291 (2d Cir.1992)); Eisen v. Carlisle and Jacquelin, 391 F.2d 555, 562 (2d Cir. 1968). Other factors that have been considered in determining the adequacy of a proposed representative include the putative plaintiffs'"knowledge of the case" and "credibility." In re Joint E. and S. Dist. Asbestos Litig., 78 F.3d 764, 778 (2d Cir. 1996).
i. Class counsel
Class counsel must be "qualified, experienced, and generally able to conduct the litigation." See id. (citing In re Drexel Burnham Lambert Group, Inc., 960 F.2d at 291; Eisen, 391 F.2d at 562).
When courts review the adequacy of counsel under Rule 23(a)(4), they generally inquire whether the counsel is willing and able to vigorously prosecute the action. Rule 23(a)(4) is satisfied where the class attorneys are experienced in the field or have demonstrated professional competence in other ways, such as by the quality of the briefs and the arguments during the early stages of the case. See, e.g., Klein v. A.G. Becker Paribas Inc., 109 F.R.D. 646 (S.D.N.Y.1986); Bacon v. Toia, 437 F.Supp. 1371 (S.D.N.Y.1977). See generally 7A Charles A. Wright & Arthur R. Miller, Federal Practice & Procedure § 1769.1 (3d ed.2005). Counsel may be deemed inadequate if they have little experience, have done inadequate work up until the decision on certification, or demonstrate a conflict of interest with some members of the class. See, e.g., Carson v. Giant Food, Inc., 187 F.Supp.2d 462 (D.C.Md.2002); Dietrich v. Bauer, 192 F.R.D. 119 (S.D.N.Y.2000); In re Joint E. & So. Dist. Asbestos Litig., 133 F.R.D. 425 (E.D.N.Y.1990). See also Wright & Miller
Congress expressly acknowledged the importance of adequate class counsel in the 2003 amendments to the Federal Rules of Civil Procedure by adding a new section devoted to the appointment of class counsel. See Fed.R.Civ.P. 23(g); Noble v. 93 University Place Corp., 224 F.R.D. 330, 339 n. 74 (S.D.N.Y.2004) ("As noted in the Advisory Committee's Notes to the 2003 Amendments, `Rule 23(a)(4) will continue to call for scrutiny of the proposed class representative, while [Rule 23(g)] will guide the court in assessing proposed class counsel as part of the certification decision.' Thus, adequacy of class counsel is now properly considered under Rule 23(g), rather than Rule 23(a)(4)."). Rule 23(g) requires a court to assess the adequacy of proposed class counsel. The court should consider: (1) the work counsel has done in identifying or investigating potential claims in the action; (2) counsel's experience in handling class actions, other complex litigation, and claims of the type asserted in the action; (3) counsel's knowledge of the applicable law; and (4) the resources counsel will commit to representing the class, as well as any other matter relevant to counsel's ability to represent the interests of the class. See Fed. R.Civ.P. 23(g)(1)(C)(I); Fed.R.Civ.P. 23(g)(1)(C)(ii). See also Noble, 224 F.R.D. at 339-40 (citing Rule 23(g)(1)(C)(I)). The court has "broad authority in making these appointments." Wright & Miller § 1802.3.
ii Class representatives lacking interests antagonistic to class
In order to adequately represent absent class members, representative plaintiffs must not have interests that are antagonistic to or in conflict with those of the class as a whole. Just as claims need not be identical for plaintiffs to meet the typicality requirement, some variation in factual claims will not necessarily create an antagonism between the interests of the representative plaintiffs and the class: the conflict with the class must be significant and fundamental in order to defeat the adequacy-of-representation requirement. See Visa Check, 280 F.3d at 145 ("The conflict that will prevent a plaintiff from meeting the Rule 23(a)(4) prerequisite must be fundamental" and "speculative conflict should be disregarded at the class certification stage.") (internal quotation marks omitted); In re Joint E. and S. Dist. Asbestos Litig., 78 F.3d 764 (2d Cir. 1996) (finding that differences in treatment of pro rata and apportionment health claimants did not create sufficient antagonism between those categories of plaintiffs to defeat adequacy-of-representation requirement); Morris v. Wachovia Secs., Inc., 223 F.R.D. 284, 299 (E.D.Va.2004) ("Because the conflict of interests over appropriate relief in this case is fundamental, it defeats the adequacy of representation requirement").
Variations in distribution of damages to different members of the class generally does not create a fundamental antagonism between plaintiffs. See Visa Check, 280 F.3d at 145 ("In the event that the district court does find conflicts[,] . . . there are a variety of devices available to resolve the problem. . . . [including] the possibilities of bifurcating liability and damage trials, decertifying the class after the liability trial, and creating subclasses."); 1 Herbert Newberg & Alba Conte, Newberg on Class
iii. Other factors
(a) Knowledge of the case and ability to supervise counsel
Courts have sometimes considered representative plaintiffs' knowledge of the case and ability to supervise counsel when evaluating whether they adequately represent the class, thus expecting them "to demonstrate a thorough familiarity with the underlying basis for his cause of action." Kamerman v. Steinberg, 113 F.R.D. 511, 517 (S.D.N.Y.1986). See also Berger v. Compaq Computer Corp., 257 F.3d 475, 481-83 (5th Cir.2001) (requiring plaintiffs to be highly knowledgeable about claims because of "Congress's emphatic command that competent plaintiffs, rather than lawyers, direct such cases."). The Second Circuit Court of Appeals has held that this "knowledge" requirement should be applied with a view toward typicality concerns:
Baffa v. Donaldson, Lufkin & Jenrette Sec. Corp., 222 F.3d 52, 61 (2d Cir.2000) (citing In re TCW/DW N. Am. Gov't Income Trust Sec. Litig., 941 F.Supp. 326, 340 (S.D.N.Y.1996)). The Baffa Court vacated the finding that the plaintiff was not an adequate class representative because "the district court unfortunately seized on a myopic view of the knowledge requirement and concluded that [plaintiff] did not have a basic understanding of the litigation and therefore could not be an adequate class representative." Baffa, 222 F.3d at 61 (citing Surowitz v. Hilton Hotels Corp., 383 U.S. 363, 370-74, 86 S.Ct. 845, 15 L.Ed.2d 807 (1966), to support the conclusion that "[t]he Supreme Court has expressly disapproved of attacks on the adequacy of a class representative based on the representative's ignorance.").
Representative plaintiffs are not required to know all the intricacies of class litigation, but only enough to serve the interests of the class and ensure that they are not simply lending their names to a suit controlled entirely by the attorneys for the benefit of counsel. See, e.g., In re Frontier Ins. Group, Inc. Sec. Litig., 172 F.R.D. 31 (E.D.N.Y.1997) (finding that plaintiffs had sufficient familiarity with their claims, despite some isolated quotes from plaintiffs' deposition transcripts suggesting that several of them did not understand legal strategies in the case, had only recently fully read their complaints, did not consider problems attending participation of eleven law firms in the action, had imperfect recollections of their investments, and did not fully comprehend their duty to supervise class counsel); Michaels
(b) Credibility of representatives
It is appropriate to consider the "honesty and trustworthiness" of class representatives. Savino v. Computer Credit, Inc., 164 F.3d 81, 87 (2d Cir.1998). Potential class representatives may not be adequate representation for the class if they "are so lacking in credibility that they are likely to harm their case." In re Frontier Ins. Group, Inc. Sec. Litig., 172 F.R.D. 31, 47 (E.D.N.Y.1997) (citing Panzirer v. Wolf, 663 F.2d 365 (2d Cir.1981)). Plaintiffs have been found to be inadequate class representatives where their testimony on an. "issue critical to" the cause of action was "subject to sharp attack." Kline v. Wolf, 702 F.2d 400, 403 (2d Cir.1983). See, e.g., Panzirer, 663 F.2d at 368 (finding that lack of credibility made the plaintiff an inadequate class representative where the plaintiff had given "no less than four versions of her conversation with her broker"); Savino, 164 F.3d at 87 (finding that lack of credibility made the plaintiff an inadequate class representative where the plaintiff "repeatedly changed his position . . . about letters that form[ed] the very basis of his lawsuit"); Zemel Family Trust v. Philips Int'l Realty Corp., 205 F.R.D. 434 (S.D.N.Y.2002) (finding that lack of credibility made the plaintiff an inadequate class representative where the plaintiff falsely represented himself as a CFO); Darvin v. Int'l Harvester Co., 610 F.Supp. 255, 257 (S.D.N.Y.1985) (finding that lack of credibility made the plaintiff an inadequate class representative where the plaintiff changed his testimony regarding an issue central to the action numerous times). Where the individual claims are not based on credibility of individual smokers, but on the characteristics of a universe to be determined with the aid of experts, the candor of one representative plaintiff among many is not decisive.
b. Application of law to facts
i. Named plaintiffs
Proposed plaintiffs will serve as adequate representatives of the putative class. Defendants have not identified any interests that are sufficiently antagonistic or conflicting as to preclude the proposed class representatives from adequately representing
Any intra-class conflicts that may arise concerning the amount and allocation of the potential damages will not preclude the proposed plaintiffs from serving as class representatives. If conflicts arise, the court has sufficient power to handle them. All named plaintiffs have relatively small potential recoveries so their interests will not conflict with the unnamed plaintiffs.
Plaintiffs' lack of specific or technical knowledge about their claims does not disqualify them as class representatives. "To require the class representative to be sophisticated and knowledgeable enough to help counsel . . . would reduce the class action device . . . to an impotent tool." Dura-Bilt, 89 F.R.D. at 103. It is unrealistic in a complex RICO action involving decades of alleged fraud and collusion to expect lay plaintiffs to be experts on the intricate legal details of their case. It is sufficient that the proposed representatives appear to have a common sense understanding of how they were allegedly wronged and what the consequences of this litigation may be.
The competence of present highly skilled and unconflicted class counsel will suffice to ensure that they are adequately represented. This litigation scheme was encouraged by Congress' inclusion of "the carrot of treble damages" in RICO, Klehr, 521 U.S. at 199 n. 2,117 S.Ct. 1984, and by the design of Rule 23, to aggregate relatively small recoveries into "something worth someone's (usually an attorney's) labor." Amchem Prods., 521 U.S. at 617, 117 S.Ct. 2231 (emphasis added).
Defendants' contention that named plaintiffs who continue to smoke after the filing of the complaint cannot be deemed to have relied on defendants' alleged misrepresentations at any time is premature: the place of addiction in this suit remains unclear.
Finally, the proposed plaintiffs, individually or as a group, do not demonstrate a lack of credibility warranting their exclusion as class representatives. They are:
Defendants' objection to this proposed plaintiff are similar to those made to Ms. Bishop. They are not disqualifying.
Defendants' objections to this proposed plaintiff are similar to those made to Ms. Bishop. They are not disqualifying.
ii. Proposed class counsel
Plaintiffs move to appoint Cohen, Milstein, Hausfeld & Toll, P.L.L.C. and Finkelstein, Thompson, & Loughran as colead class counsel in accordance with Federal Rule of Civil Procedure 23(g). Proposed counsel have performed significant work in investigating the claims of the class and have committed substantial resources to represent the putative class in the litigation to date. They have demonstrated extensive knowledge of the applicable law and experience in handling similar class actions. Their briefs, exhibits, and oral representations are excellent. Since defendants' attacks on the choice of class representatives have been rejected, there is no other factor to suggest proposed counsel are not "qualified, experienced, and generally able to conduct the litigation." In re Joint E. & S. Dist. Asbestos Litig., 78 F.3d 764, 778 (2d Cir.1996). The court finds that proposed counsel will adequately represent the interests of the class.
1. Law
Rule 23(b)(2) permits class certification if "the party opposing the class has acted or refused to act on grounds generally applicable to the class, thereby making appropriate final injunctive relief or corresponding declaratory relief with respect to the class as a whole." Fed.R.Civ.P. 23(b)(2). A class will be certified if "broad, class-wide injunctive or declaratory relief is necessary to redress a group-wide injury." Robinson v. Metro-North Commuter R.R. Co., 267 F.3d 147, 162 (2d Cir.2001).
Subsection (b)(2) has primarily been used in civil rights, institutional, environmental, and law reform cases. See 2 Newberg on Class Actions § 4:11. Since it focuses primarily on injunctive relief, some difficulty may arise in cases where plaintiffs seek both injunctive relief and money damages. Money-damage class actions generally fall under Rule 23(b)(3), which imposes additional notice requirements and opt-out rights, as well as stricter predominance and superiority requirements for the protection of absent class members. "[T]he main focus in determining the applicability of subdivision (b)(2) is whether the injunctive relief that is being sought is deemed to be the primary relief, with money damages being only incidental. A suit predominantly seeking money damages does not qualify under [subdivision (b)(2) 1." Wright & Miller § 1775. See also Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 564 (2d Cir.1968) ("Subsection (b)(2) was never intended to cover cases like the instant one where the primary claim is for damages, but is only applicable where the relief sought is exclusively or predominantly injunctive or declaratory."). But see Visa Check, 192 F.R.D. at 88
In Robinson v. Metro-North Commuter R.R. Co., 267 F.3d at 167, the Court of Appeals for the Second Circuit adopted a "discretionary" ad hoc standard for determining whether a claim should be certified for class treatment under Rule 23(b)(2). In doing so, the court rejected the Fifth Circuit's "no more than incidental damages" standard, a bright-line approach that "forecloses (b)(2) class certification of all claims that include compensatory damages (or punitive damages) even if the classwide injunctive relief is the form of relief in which the plaintiffs are primarily interested." Id. at 163 (internal quotation marks omitted).
Id. at 164 (internal citations and quotation marks omitted). See also Parker v. Time Warner Entm't Co., 331 F.3d 13 (2d Cir. 2003).
Before allowing certification under subsection (b)(2), a district court should, "at a minimum," determine that: "(1) even in the absence of a possible monetary recovery, reasonable plaintiffs would bring the suit to obtain the injunctive or declaratory relief sought; and (2) the injunctive or declaratory relief sought would be both reasonably necessary and appropriate were the plaintiffs to succeed on the merits." Robinson, 267 F.3d at 165. "Insignificant or sham requests for injunctive relief' should not be certified under subsection (b)(2) when the claims are essentially brought for monetary recovery. Id.
2. Application of Law to Facts
The injunctive relief sought by plaintiffs—elimination of "light," "lights," and other such descriptors from all cigarette packaging and advertising—is arguably maintainable under 23(b)(2). The confusion engendered by these descriptors is central to plaintiffs' complaint; cessation of use would prevent, in plaintiffs' view, future deception. The growing awareness of the public health community and smokers that "light" cigarettes do not necessarily confer a health benefit, see, e.g., Monograph 13, Appendix E, infra, and admissions by defendants to this effect, see, e.g., Philip Morris USA website, "Smoking & Health Issues: Low Tar Cigarettes," at www.pmusa.com/en/health_ issues/low_tar_cigarettes.asp, lessens the importance of any such judicial regulation of the industry without lessening the difficulties it would entail. In the recently issued final opinion in the government suit against the industry, the district court entered such an injunctive order. See United States v. Philip Morris, 449 F.Supp.2d at 937. Coordination between the Department of Justice and the FTC may permit that injunction to be enforced.
Rule 23(b)(3) permits the certification of a class action if the prerequisites of subdivision (a) are satisfied and if the court finds that (1) "the questions of law or fact common to the members of the class predominate over any questions affecting only individual members," and (2) "a class action is superior to other available methods for the fair and efficient adjudication of the controversy." Fed.R.Civ.P. 23(b). See also Amchem Prods., 521 U.S. at 615, 117 S.Ct. 2231; Moore v. PaineWebber, Inc., 306 F.3d 1247, 1252 (2d Cir.2002). "Framed for situations in which `class action treatment is not as clearly called for' as it is in Rule 23(b)(1) and (b)(2) situations, Rule 23(b)(3) permits certification where class suit may `nevertheless be convenient and desirable.'" Amchem Prods., 521 U.S. at 615, 117 S.Ct. 2231 (quoting Fed.R.Civ.P. 23(b)(3) advisory committee notes (1966)). The Supreme Court has stated that "[w]hile the text of Rule 23(b)(3) does not exclude from certification cases in which individual damages run high, the Advisory Committee had dominantly in mind vindication of the rights of groups of people who individually would be without effective strength to bring their opponents into court at all.'" Id. at 617, 117 S.Ct. 2231.
1. Law
a. Predominance of common questions of law or fact
Rule 23(b)(3) requires that "the questions of law or fact common to the members of the class predominate over any questions affecting only individual members." Fed.R.Civ.P. 23(b)(3). This predominance inquiry focuses on the same commonality issues as Rule 23(a)(2), but employs a significantly more demanding standard, testing "whether proposed classes are sufficiently cohesive to warrant adjudication by representation." Amchem Prods., 521 U.S. at 623, 117 S.Ct. 2231. It "calls only for predominance, not exclusivity, of common questions." Visa Check, 280 F.3d at 140.
Issues applicable to the class will be said to predominate "if resolution of some of the legal or factual questions that qualify each class member's case as a genuine controversy can be achieved through generalized proof, and if these particular issues are more substantial than the issues subject only to individualized proof." Moore, 306 F.3d at 1252. See also Visa Check, 280 F.3d at 136 ("In order to meet the predominance requirement of Rule 23(b)(3), a plaintiff must establish that the issues in the class action that are subject to generalized proof, and thus applicable to the class as a whole, . . . predominate over those issues that are subject only to individualized proof.") (internal quotation marks omitted). A court deciding a motion for certification under 23(b)(3) therefore examines which, if any, of the required elements of the plaintiffs' claims and any defenses can be established by common evidence. See Visa Check, 280 F.3d at 136.
As the Court of Appeals for the Second Circuit recently clarified the matter, certification on particular issues may be appropriate even if certification of the class on all issues is not. In re Nassau County Strip Search Cases, 461 F.3d 219,
i. Violation of RICO mail or wire fraud
In determining Rule 23(b)(3) predominance, the court's inquiry is primarily focused on issues of liability. See Cumberland Farms v. Brbwning-Ferris Indus., 120 F.R.D. 642, 647 (E.D.Pa.1988). It is the alleged racketeering conduct, such as a wide-spread scheme of mail and wire fraud designed to mislead a class of buyers about a particular commodity, that creates liability in a RICO action. The charged racketeering conduct will therefore be the most important issue in the predominance inquiry:
In re ACC Lincoln Say. & Loan Sec. Litig., 140 F.R.D. 425, 431 (D.Ariz.1992) (citing Shores v. Sklar, 647 F.2d 462 (5th Cir.1981)) (emphasis supplied).
The Supreme Court has recognized that Rule 23(b)(3) predominance "is a test readily met in certain cases alleging consumer or securities fraud or violations of the antitrust laws." Amchem Prods., 521 U.S. at 625, 117 S.Ct. 2231. Such situations involve an "underlying scheme" to defraud a large group of purchasers which focuses the court's inquiry on the conduct of the defendant rather than that of individual plaintiffs, making it particularly susceptible to common, generalized proof. See Falise v. American Tobacco Co., 94 F.Supp.2d 316, 335 (E.D.N.Y.2000); Lerch v. Citizens First Bancorp, Inc., 144 F.R.D. 247, 252 (D.N.J.1992) ("[P]redominance may be found if the defendant's challenged activities stem from a single, class-wide course of conduct, so that the issue of statutory liability is common to the class.") (internal quotation marks omitted).
ii. Causation and reliance
A RICO plaintiff "faces an additional hurdle": showing that the injury was caused "by reason of" the RICO violation. Summit Properties Inc. v. Hoechst Celanese Corp., 214 F.3d 556, 559 (5th Cir. 2000). Although reliance is required to show causation for RICO claims based on mail or wire fraud, "the nature of the reliance is not a constant." Falise, 94 F.Supp.2d at 335.
(a) General proof of reliance
The Court of Appeals for the Second Circuit has not specifically decided the standard of reliance for RICO claims such as those in the instant case. Its approach to reliance in fraud cases varies with context. For example, in a life insurance fraud claim brought under RICO, it held:
Moore v. PaineWebber, Inc., 306 F.3d 1247, 1253 (2d Cir.2002) (de-certifying a class because it fell into the latter category).
In Falise v. American Tobacco Co., reliance for RICO fraud claims was found to be amenable to generalized proof in situations where the scheme of fraud was targeted at a large portion of the public:
94 F.Supp.2d at 335.
Similar adjustments have been made in other areas of the law. While neither binding in this case, nor identical in reasoning, securities fraud and antitrust actions provide illuminating examples of how federal courts have interpreted the standard of proof for reliance involved in broad-based schemes of fraud. For example, in Basic v. Levinson, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988), the Supreme Court recognized that if every investor were required to prove individual reliance in securities cases, it would preclude plaintiffs from ever being certified as a class and, effectively, from ever bringing suit at all. 485 U.S. at 245, 108 S.Ct. 978 (requiring proof of individual reliance would impose an "unnecessarily unrealistic evidentiary burden"). Not satisfied with such a result, the Supreme Court reasoned that securities fraud class actions may be premised on a fraud-on-the-market presumption of reliance. Id.
First recognized by federal courts in Blackie v. Barrack, 524 F.2d 891 (9th Cir. 1975), the fraud-on-the-market theory is based on the idea that, in an efficient securities market, stock prices will reflect all publicly available information, including fraudulent misinformation. Because this misinformation inflates the stock price on which buyers rely in determining the worth of the entity in which they are investing, buyers implicitly rely on the fraudulent misinformation without necessarily realizing it; therefore, when alleging that the corporation fraudulently provided information that altered its stock price, individual plaintiffs do not have to prove that they personally saw or read the inaccurate information. See Basic, 485 U.S. 224, 108 S.Ct. 978, 99 L.Ed.2d 194; Blackie, 524 F.2d 891.
The fraud-on-the-market presumption of reliance amounts to an acceptably objective standard of what constitutes reliance, where reliance may be inferred from the materiality of the misstatements or omissions
Such a presumption may be appropriate in the present case, where defendants have conceded that all rational smokers would avoid health risks by choosing a less dangerous cigarette if they could. See Tr. of Sept. 13, 2006 Hr'g 84:23-85:2 ("[T]he central question of whether a purchaser, given two identical cigarettes, taste identical, cost the same, everything, would prefer one that had less risk or more risk [is] a question that only a suicidal person could answer in the negative, or someone who didn't understand the question.").
These doctrines are flexible; they permit deviations in favor of class certification. In Visa Check, the Court of Appeals cited Blackie v. Barrack (a securities suit) to support its conclusion in an antitrust case that common issues may predominate over individual ones notwithstanding individual questions of causation where liability can be determined on a class-wide basis. See also Eisen v. Carlisle & Jacquelin, 391 F.2d at 565, 567 (noting "the desirability of providing small claimants with a forum in which to seek redress for alleged large scale anti-trust violations" and finding that common questions of law or fact predominate over individual questions even though "members of the proposed class might have had different motives when they entered into the odd-lot market.").
Generalized proof may include surveys, expert evidence on marketplace principles, and extrapolated and statistic analysis of individuals and groups in the class, such as that conducted by plaintiffs' experts. See Parts VIII.F, IX.A, infra.
(b) Individual proof of reliance
When individual proof of subjective reliance is required, Courts of Appeals are split over whether such a situation precludes class certification in RICO cases. In Sandwich Chef of Texas, Inc. v. Reliance Nat'l Indem., 319 F.3d 205 (5th Cir. 2003) the Fifth Circuit Court of Appeals posited that "[f]raud actions that require proof of individual reliance cannot be certified as Fed.R.Civ.P. 23(b)(3) class actions because individual, rather than common, issues will predominate." 319 F.3d at 211. The court explained its position rejecting certification:
Id. at 218-219 (internal citations and quotation marks omitted).
This unyielding rigid approach has been rejected by other federal appellate courts, including the Court of Appeals for the Seventh Circuit, which reversed a district court's denial of class certification in a RICO action and rejected Sandwich Chefs result:
Carnegie v. Household Intern., Inc., 376 F.3d 656, 663 (7th Cir.2004). See also Schaefer v. Overland Exp. Family of Funds, 169 F.R.D. 124, 131 (S.D.Cal.1996) (variation in plaintiffs' reliance did "not result in a conclusion that individual issues predominate over the common questions").
The Court of Appeals for the Second Circuit has used a similar liberal approach to that of the Seventh Circuit in the securities fraud context:
Green v. Wolf Corp., 406 F.2d 291, 301 (2d Cir.1968) (internal citation omitted). In this circuit, variations in individual reliance may be adjusted in a variety of ways including averaging through statistical analysis and variations in damage awards. See Parts X.A, X.B, infra.
Individualized damage issues do not preclude a Rule 23(b)(3) class action when liability can be determined on a class-wide basis. Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 139 (2d Cir.2001). See generally Fed.R.Civ.P. 23(b)(3) advisory committee notes (1966) (explaining that "a fraud perpetrated on numerous persons by the use of similar misrepresentations may be an appealing situation for a [Rule 23(b)(3)] class action, and it may remain So despite the need, if liability is found, for separate determination of the damages suffered by individuals within the class"); 4 Herbert Newberg & Alba Conte, Newberg on Class Actions § 18.27 (3d ed.1992) (stating that for antitrust class actions, "[a] particularly significant aspect of the Rule 23(b)(3) approach is the recognition that individual damages questions do not preclude a Rule 23(b)(3) class action when the issue of liability is common to the class"); Bertulli v. Independent Ass'n of Cont'l Pilots, 242 F.3d 290, 298 (5th Cir.2001); Blackie, 524 F.2d at 905 (9th Cir.1975) ("The amount of damages is invariably an individual question and does not defeat class action treatment.").
If the determination of damages poses some difficulty, the court may employ various devices to manage the issue, instead of denying certification under the predominance inquiry. The Court of Appeals for the Second Circuit has adopted this approach with regard to both securities fraud and antitrust class actions. In Visa Check, the court stated that "if defendants' argument (that the requirement of individualized proof on the question of damages is in itself sufficient to preclude class treatment) were uncritically accepted, there would be little if any place for the class action device in the adjudication of antitrust claims" and "[s]uch a result should not be and has not been readily embraced by the various courts confronted with the same argument." 280 F.3d at 140 (internal citation omitted). The court went on to suggest a number of management tools available to a district court for addressing any individualized damages issues that might occur in a class action, including: "(1) bifurcating liability and damage trials with the same or different juries; (2) appointing a magistrate judge or special master to preside over individual damages proceedings; (3) decertifying the class after the liability trial and providing notice to class members concerning how they may proceed to prove damages; (4) creating subclasses; or (5) altering or amending the class." Id. at 140 (citing Fed.R.Civ.P. 23(c)(4) provision stating that "[w]hen appropriate, (A) an action may be brought or maintained as a class action with respect to particular issues, or (B) a class may be divided into subclasses and each subclass treated as a class."). In Green v. Wolf, a securities fraud case, the Court of Appeals held that "[t]he district court may use the procedures suggested by Rule 23 to cope with [individual issues]" and can "order separate trials . . . on the question of damages, if necessary. The effective administration of 23(b)(3) will often require the use of the `sensible device' of split trials." 406 F.2d at 300-301. None of the suggestions in (1) to (5) in Visa Check or in Green is required in the instant case because the matter can be handled by statistical averaging over the entire class. See Part IX.A, infra.
Finding the Court of Appeals for the Second Circuit's rationale applicable to the RICO context, the Seventh Circuit, in Carnegie v. Household Intern., Inc., explained:
376 F.3d at 661 (some citations omitted). The court went on to quote the five management tools suggested by the Court of Appeals for the Second Circuit in Visa Check, supra.
b. Superiority
Rule 23(b)(3) requires a court to consider whether a class action is superior to other methods of adjudication. Matters pertinent to this inquiry include: "(A) the interest of members of the class in individually controlling the prosecution or defense of separate actions; (B) the extent and nature of any litigation concerning the controversy already commenced by or against members of the class; (C) the desirability or undesirability of concentrating the litigation of the claims in the particular forum; and (D) the difficulties likely to be encountered in the management of a class action." Fed.R.Civ.P. 23(b)(3). See also Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 164, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). This is a "nonexhaustive" list. Amchem Prods., 521 U.S. at 615, 117 S.Ct. 2231.
"In setting out these factors, the Advisory Committee for the 1966 reform anticipated that in each case, courts would `consider the interests of individual members of the class in controlling their own litigations and carrying them on as they see fit.'" Id. at 616, 117 S.Ct. 2231 (quoting Fed.R.Civ.P. 23(b)(3) advisory committee notes (1966)).
Id.
The difficulties likely to be encountered in the management of a RICO class action with respect to individual reliance and damages issues have for the most part been discussed in Parts III.0 and III.D, supra. While these problems are significant, they are superable. Extrapolation that comports with due process can be carried out using very small samples; the burden on the parties and the court of generating and evaluating the evidence would not be over-great. See, e.g., Michigan Dept. of Educ. v. U.S. Dept. of Educ., 875 F.2d 1196, 1199 (6th Cir.1989) (in suit by state challenging administrative finding
It should be noted that "failure to certify an action under Rule 23(b)(3) on the sole ground that it would be unmanageable is disfavored and should be the exception rather than the rule." Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 140 (2d Cir.2001). See also Yaffe v. Powers, 454 F.2d 1362, 1365 (1st Cir. 1972) ("[F]or a court to refuse to certify a class . . . because of vaguely-perceived management problems . . . discount[s] too much the power of the court to deal with a class suit flexibly, in response to difficulties as they arise."); In re Workers' Compensation, 130 F.R.D. 99, 110 (D.Minn. 1990) ("[D]ismissal for management reasons is never favored."); In re Bristol Bay, Alaska, Salmon Fishery Antitrust Litig., 78 F.R.D. 622, 628 (W.D.Wash.1978) (stating that "dismissal for management reasons, in view of the public interest involved in class actions, should be the exception rather than the rule") (internal quotation marks omitted).
If a class action is "markedly superior to all the alternatives," a court should, "at least at the early stages of the litigation . . . construe broadly the other elements of Rule 23." Green, 406 F.2d at 301.
2. Application of Law to Facts
Subsection (b)(3) of Rule 23 is more comprehensive than subsection (b)(2) and imposes stricter superiority and predominance requirements. See 2 Herbert Newberg & Alba Conte, Newberg on Class Actions § 4:1 (4th ed.2002). The court therefore evaluates plaintiffs' claims under the subsection (b)(3) rubric.
a. Class action is superior method of adjudication
A class action is the superior method for the fair and efficient adjudication of this controversy. Considering the complexity of this lawsuit, involving an alleged conspiracy perpetrated by multiple corporate defendants over a period of several decades, extensive discovery and litigation will be required to prosecute it; most plaintiffs will not be in a position to do so alone or even in smaller joinder actions. The costs to individual plaintiffs would dwarf any potential recovery. One of the fundamental purposes of Rule 23 is to enable such small claimants to seek judicial redress through the aggregation of claims into a single class action.
Plaintiffs, a class of "light" cigarette purchasers, are the only direct victims of an alleged massive scheme by cigarette companies to defraud consumers, and thus may be the only plaintiffs with standing to bring claims against the defendants. In Service Employees Int'l Union Health & Welfare Fund v. Philip Morris, Inc., 249 F.3d 1068 (D.C.Cir.2001), the Court of Appeals for the District of Columbia dismissed a plaintiff labor union trust fund's RICO claims against cigarette companies,
Given that the United States government was precluded from seeking a disgorgement remedy in their RICO case against the cigarette industry, the instant action, or one like it, is likely to be the only way defendants, if they are responsible for the alleged massive fraudulent scheme, can be forced to account monetarily to "light" cigarette smokers in federal court and be deterred from continuing such fraudulent conduct in the future. See United States v. Philip Morris USA, Inc., 396 F.3d 1190, 1200 (D.C.Cir.2005) (concluding that the federal government could not seek a disgorgement remedy; "[i]ndividual plaintiffs are made whole and defendants punished through treble damages under 18 U.S.C. § 1964(c) . . ."). It would be unfair for the court system to deny recovery to institutional plaintiffs because direct victims can recover, only to then deny those direct victims recovery.
A class action in the instant case is a superior method of adjudication because it is likely to be the only method of adjudication open to plaintiffs. See Aspinall, 442 Mass. at 398 n. 21, 813 N.E.2d 476 (approving certification of a "light" cigarettes fraud class action; "[t]he device of a class action is . . . driven by pragmatic considerations. Requiring individual actions to be brought by thousands of individual smokers, merely to provide absolute certainty that (for example) each plaintiff sometimes covered up the vent holes, would by wholly impractical."); Curtis, 2004 WL 2776228, at *5 (same; "a class action is not only an appropriate method to resolve the plaintiffs' allegations, but pragmatically, the only method . ."). On this reasoning, the Supreme Judicial Court of Massachusetts certified a statewide class action alleging a similar cigarette fraud over the defendant's similar objections.
Aspinall, 442 Mass. at 392-93, 813 N.E.2d 476.
In such "death knell" situations, as in the instant one, where the only possible litigation is a class action, the other requirements of Rule 23 are read broadly, since the court's obligation to protect the interests of absent class members is best served by allowing some form of adjudication, as opposed to none at all, to go forward. See Green v. Wolf Corp., 406 F.2d 291, 302 (2d Cir.1968) ("If a class action is markedly superior to all the alternatives, then, at least at the early stages of the litigation, we should construe broadly the other elements of Rule 23 . .").
b. Common questions of law or fact predominate
Questions relating to the defendants' commission of mail and wire fraud through an alleged conspiracy and scheme to fraudulently market "light" cigarettes generates a significant number of common questions of law and of fact, discussed supra. Fraud-based claims premised on a common course of conduct or scheme satisfy the predominance inquiry. The defendants' conduct and the impact of that conduct will be substantially the same for most class members. It would be both inefficient and unjust to force plaintiffs to relitigate the same issues concerning the existence, scope, and effect of what appears to be a uniform fraudulent scheme— whatever minor variations might have existed in its execution. See Davies v. Philip Morris, No. 04-2-08174-2, 2006 WL 1600067, at *2 (Wash.Super. May 26, 2006) (finding commonality under state class action rule; rejecting "the argument . . . that the various packages used over the years or the various commercial advertisements somehow strips [the question of defendants' alleged deception] of its commonality.").
Plaintiffs' experts have demonstrated that they can probably extrapolate to the class as a whole from individual class members' experience as determined in individual discovery, surveys, and statistical proof. Daubert analysis has found their scientific approach meets appropriate standards of proof under the Federal Rules of Evidence despite strong scientific proof to the contrary, proffered by defendants. See Part VIII, infra. The issues are for the jury. Denying certification would bring a premature end to a series of related claims that appear to have considerable merit.
Nevertheless, defendants argue that the existence of four major individualized issues precludes a finding of predominance of the common questions of law or fact. These issues are: (1) reasonable reliance; (2) injury to business or property; (3) calculation of damages; and (4) the affirmative defense that some members of the
All of these objections are based on defendants' position that each smoker differs from every other smoker—and any one smoker's behavior differs from one day, or one cigarette, to the next. While superficially true, the argument is overstated. The putative class contains only smokers of "light" cigarettes, one segment of the cigarette market. Common sense and defendants' own documents strongly suggest that the members of the class are persons who were drawn to the brand images consciously projected by defendants after careful consumer research. See, e.g., Expert Report of Richard Pollay, ¶¶ 31-37, excerpted in Part VIII.F.1.m (quoting internal industry documents demonstrating defendants' understanding of the "lights" market, including the following from a 1978 study: "The very fact, then, that a smoker has decided to switch from a full-flavor cigarette to a low delivery cigarette tells us something very important about him: he is concerned about his health, and he is willing to do something about it."). It is probable that the variation among plaintiffs' reactions to defendants' representations is not great in ways that matter to the outcome of this case. Cf. Price, Appendix C at ¶ 40, infra ("that Class members may have relied to different degrees or different ways upon [defendants'] health representations" did not preclude class treatment) (emphasis supplied).
i. Reliance
In creating RICO, Congress was particularly concerned that "those who have been wronged . . . should at least be given access to a legal remedy." Sedima, 473 U.S. at 487, 105 S.Ct. 3275. Should plaintiffs prove their claims of conspiracy, collusion, and a broad-based scheme to deceive a large part of the American public, they will have established the existence of "organized" RICO crime, in the sense that the conduct was criminal and purposefully orchestrated, with significant effects on the American economy. As Nobel Prize winning economist Joseph E. Stiglitz notes, defendants'
Decl. of Joseph E. Stiglitz at 44; Part VIII.F.1.p.
The burden of proof for RICO reliance in a suit alleging mass market fraud is set out in Falise v. American Tobacco Co.:
94 F.Supp.2d 316, 335 (E.D.N.Y.2000). In such a case, attention is properly trained on defendants' alleged misconduct, not minor differences in plaintiffs' reaction to it. But see Pearson v. Philip Morris, Inc., No. 0211-11819, 2006 WL 663004, at *7, *10 (Or.Cir. Feb. 23, 2006) (placing burden on each plaintiff to demonstrate that he or she was not receiving less tar; individual questions predominated because plaintiffs did not present any evidence purporting to prove reliance and causation on class-wide basis).
In proving that defendants' alleged scheme existed, and class members then purchased "light" rather than "regular"— or no—cigarettes, plaintiffs may be able to show through their experts and other proof that reliance was reasonable and pervasive. Proving such a successful and pervasive marketing scheme presents a substantial hurdle. Yet the evidence thus far presented by the plaintiffs includes evidence sufficient to go to the jury.
Plaintiffs have presented evidence through defendants' own internal documents, memoranda, and first-hand testimony that they recognized at the time that their conduct was likely to create liability to "light" cigarette purchasers. The certainty that not all "light" smokers chose their brands for the same reasons does not preclude a finding that an implied reduction in danger was a substantial factor in nearly all class members' decisions. See Expert Report of John Hauser, Part VIII. F.1.i (concluding based on reliable surveys that 90.1 percent of the class members based their decision to smoker "light" cigarettes on health concerns). Cf. Price, Appendix C at ¶ 47, infra ("[T]he mere existence of potential other reasons for a consumer to prefer the products at issue in this case does not vitiate or eliminate the fraud associated with the health representation as a causative influence on all Class members' purchase decisions.").
Reasonable inferences may be made based on the nature of sophisticated marketing and advertising of a product available throughout the nation. As one commentator has recognized,
Mark' Moller, The Rule of Law Problem: Unconstitutional Class Actions and Options for Reform, 28 Harv. J.L. & Pub. Pol'y 855, 860 (2005). As discussed above, general proof or use of presumptions are practical responses to the limitations of an "individual rights" model in a mass market economy.
A focus on defendant misconduct is not unusual in consumer cases. Theories of consumer products liability and implied warranty of merchantability also emphasize the conduct of defendants and their position relative to plaintiff-purchasers:
Samuel Issacharoff, The Vexing Problem of Reliance in Consumer Class Actions, 74 Tul. L.Rev. 1633, 1648 (2000).
Individual subjective reliance has also been de-emphasized in the law of express warranties, having been largely replaced by "an obligation on the part of the seller to honor the `basis of the bargain.'" Id. at 1652. Professor Issacharoff argues that these alterations in the standard of proof of reliance are often presented in class certification debates because:
Id. at 1635.
Such a concentration of attention by the court is particularly appropriate in the present suit. Defendants not only had significantly more economic power than smokers, they also had significant control of the scientific information available to consumers regarding the healthiness or dangers of "light" cigarettes. There is substantial evidence that they used their knowledge and power to the detriment of the public: they allegedly agreed to halt much of the scientific testing and development of a truly healthy cigarette, hid much of the adverse scientific information they did discover (including knowledge about the failings of the FTC method of measuring tar and nicotine), and exploited other knowledge (including information concerning compensation). See, e.g., Simon II, Appendix D at Part III.B.5, infra. As a result, consumers were unlikely to have had any way to challenge or any basis to critique the health information disseminated by the defendants concerning "light" cigarettes.
Substantial evidence supports plaintiffs' position that defendants used general "proof," in the form of marketing research and customer surveys, to determine how to advertise and promote their products to actual and potential smokers. See, e.g.,
Where a defendant specifically targets a large group and knowingly relies on the group's dynamics and communications to succeed in a fraud, that group may assert its "group rights" in holding the defendant accountable for its conduct. The RICO mail and wire fraud federal substantive law and the Rule 23 federal procedural law together provide a powerful tool for satisfying the community's basic sense of fairness while protecting defendants' due process rights. Utilization of the class action does not change the lawful conduct to be expected of the defendants when the alleged conspiracy was operative.
As discussed above, the Court of Appeals for the Second Circuit has held in antitrust and securities fraud contexts that reliance issues do not warrant class decertification, especially where the defendant's liability can be established through common proof. See In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 140 (2d Cir.2001); Green v. Wolf Corp., 406 F.2d at 300-301. The Seventh Circuit extended this approach to RICO claims in Carnegie, 376 F.3d at 661. This approach is applicable to the present case. The facts in the instant case are at least as compelling as those in Visa Check, Green, and Carnegie.
ii. Injury to property and damages
Defendants argue that plaintiffs cannot show injury to property on a class-wide basis. Under their theory, the requisite showing of injury would require an individualized determination of each class member's personal loss because, defendants maintain, at least some of them got what they were promised from "light" cigarettes. For example, if an individual plaintiff cannot show that he or she "compensated" for the lower tar and nicotine levels in "light" cigarettes by inhaling more deeply, covering ventilation holes, or smoking greater quantities of cigarettes, then that plaintiff may not be able to prove that he or she did not receive less tar and nicotine, and thus, it is contended, cannot prove any injury.
Defendants' claims are not convincing on the issue of certification. First, the question of what was promised has not yet been decided. Whether the promise, explicit or implicit, in defendants' advertising campaign was the delivery of less tar and nicotine or a healthier cigarette is a question subject to proof and best decided by a jury in a centralized class adjudication.
Second, plaintiffs have proffered several theories of injury and damages that are based on "light" cigarettes being overpriced. For example, plaintiffs' expert
Expert Report of John C. Beyer at ¶ 32; Part VIII.F.1.a, infra.
Plaintiffs' expert Jeffrey E. Harris, M.D. Ph.D. has identified another economic methodology for computing class-wide damages:
See Expert Report of Jeffrey E. Harris at ¶¶ 11, 20; Part VIII.F.1.h, infra.
Both Dr. Beyer's and Dr. Harris's proposed testimony meet Daubert requirements. See Parts VIII.F.1.a, VIII.F.1.h, infra. They sufficiently support certification.
Defendants' contention that certification is inappropriate because some smokers likely received less nicotine and tar, or a cigarette that was in fact less dangerous, places an impossible and unnecessary burden on plaintiffs. "So far as we are aware, the actual level of tar and nicotine received by an individual smoker is a factor that cannot be measured by any test." Aspinall, 442 Mass. at 398, 813 N.E.2d 476. And the obverse of defendants' position is also true: if some smokers received what was promised, then others did not. See Aspinall, 442 Mass. at 398 n. 20, 813 N.E.2d 476 ("Indeed, it may be unlikely that any individual would smoke a cigarette the exact same way twice. Thus, by implication, it is probable that no smoker received the promised benefit of lowered tar and nicotine every time he or she smoked a Marlboro Lights cigarette."). Reliable statistical evidence is available to help the jury decide, within a reasonably precise range, how many fall into the defrauded category. See Part IX.A, infra.
As discussed in Part III, plaintiffs' evidence to date is less than decisive. It is sufficient, however, to support certification. Cf. Caridad, 191 F.3d at 293 (reversing district court's denial of certification where the trial court had credited defendant's expert evidence over plaintiffs'; "More detailed statistics might be required to sustain the Plaintiffs' burden of persuasion, but [their proffered expert] report, in conjunction with the anecdotal evidence, satisfies the Class Plaintiffs' burden of demonstrating commonality for purposes of class certification.") (internal citation omitted).
Individual smoker variation is no reason to deny recovery to the entire class:
Craft, 2003 WL 23355745, at *4. Such a smoker has been defrauded—he or she paid for something that he or she did not get—and so has suffered an economic injury.
This economic loss can arguably be calculated based on general data from the market, such as cigarette sales records, rather than on receipts that "light" cigarette purchasers may or may not have kept. It is not necessarily contingent on whether some "light" cigarette purchasers would have continued to smoke regular cigarettes but for the "lights" fraud. See Part III.B.2.a, supra (rejecting argument that, as a matter of law, plaintiffs who would have smoked regular cigarettes absent the fraud suffered no injury).
A class certification motion is not the proper forum in which to evaluate the merits of experts' theory of damages, but only to ascertain whether they are colorable. See Visa Check, 280 F.3d at 139 (holding that the court "must ensure that the basis of the expert opinion is not so flawed that it would be inadmissible as a matter of law," but should not consider "whether the evidence will ultimately be persuasive."); Caridad v. Metro-North Commuter R.R., 191 F.3d 283, 292-93 (2d Cir.1999) (holding that a court may not weigh conflicting expert evidence or engage in "statistical dueling" of experts."). See also Aspinall, 442 Mass. at 400, 813 N.E.2d 476 ("Whether plaintiffs ultimately will be successful in proving actual damages is a matter that need not be resolved at the certification stage.").
There is no persuasive reason why individualized damages should preclude certification under Rule 23(b)(3), even were they to become an issue, "when the issue of liability can be determined on a class-wide basis." 280 F.3d at 139.
Craft, 2003 WL 23355745, at *10.
Defendants also contend that plaintiffs' claims are personal injury claims in disguise, and so raise predominating individual questions rendering certification inappropriate. Plaintiffs' theories of injury and damages are based on the actual worth of the "light" cigarette as compared to how much a purchaser paid for them when deluded into thinking they were relatively healthful. This is an economic loss, not a personal injury. It raises questions of claim splitting, already rejected in Part IV.C, supra, but not questions of individual proof.
The Court of Appeals for the Second Circuit has stated, in the criminal context, that "a party who contracts to have goods produced or services performed according to certain specifications, and who pays for
Plaintiffs have suggested a sensible and usable plan for managing the litigation. Pls.' Resp. to Mem. of June 6, 2005, Ex. 8. They have included understandable proposed jury charges, verdict forms, and notice procedures. Pls.' Resp. to Mem. of June 6, 2005 (Docket No. 676), Exs. 3-7. While they propose a bifurcated trial as suggested in Green, the court finds that a single trial of liability and damages is practicable and desirable; a single trial will save time and money.
iii. Statute of limitations
Individual issues concerning the statute of limitations do not predominate over common questions of liability, and thus do not preclude class certification under Rule 23(b)(3). Defendants contend that the class must include at least some untimely claims under RICO's four-year limitations period, which would bar plaintiffs who were or reasonably should have been on notice of their injury before May 11, 2000 when the action was commenced.
The issue of timeliness goes to the merits of the case, and cannot be decided now to deny certification. Chiang v. Veneman, 385 F.3d 256 (3d Cir.2004) (holding that a statute of limitations defense goes to the merits and hence is not an appropriate objection in the context of class certification); In re Monumental Life Ins. Co., 365 F.3d 408 (5th Cir.2004) (finding that the issue of whether individual claims were barred by statute of limitations did not predominate over request for injunctive relief so as to preclude certification of class because a theory of constructive notice, which could be decided on class-wide basis). It was properly addressed when defendants' motion for summary judgment was denied. See Part III.E, supra.
There is substantial evidence concerning defendants' alleged conspiracy to hide the truth about "light" cigarettes, that there was a class-wide lack of notice before May 11, 2000, and that there was fraudulent concealment, a just cause for equitable tolling of the limitations period on a class-wide basis. See Part III.E.3, supra. Even if some members of the class would be barred at different times, the jury will be able to extrapolate the total damages with the aid of experts and statistical analysis.
This issue will present questions that can be decided based on generalized proof, including questions concerning what constitutes notice of injury and wide dissemination of the truth about the healthiness of "light" cigarettes in a case where defendant's alleged misrepresentations about "light" cigarettes were so broadly publicized for so many years in their extensive advertising campaign; where defendants claim that as recently as 1996 the National Cancer Institute (NCI) published a report that concluded that lower tar cigarettes reduce the risk of lung cancer (Def.'s Opp'n to Pls.' Mot. For Class Cert. at 18); and where Monograph 13, concluding that "light" cigarettes were not healthier, was published within the statute of limitations period. See Part III.E.3.b.ii, supra. It is a question for the jury to resolve upon a
The statute of limitations defense does not cause individual questions to predominate. See Craft, 2003 WL 23355745, at *12 ("[T]he statute of limitations does not present an individualized question of law or fact of sufficient magnitude, whether considered separately or in combination with other questions, to result in such predominance of individual questions over common questions as would warrant denial of class certification. A class definition is always subject to possible later change or even decertification as a case develops . .").
Should the statute of limitations question not prove to be amenable to generalized proof, the court retains the same mechanisms to manage individualized statute of limitations issues as it does for individualized reliance and damages issues.
This inquiry is discussed under Part VII.B.4, supra.
One of the major functions of Rule 23 is to promote judicial economy. Another is to provide a means for individual private persons to sue in the interest of members of a larger group who would not be able to pursue those claims individually, a goal in line with those of RICO, a private attorney general statute. These primary goals, judicial efficiency and justice for small claimants, must be balanced against the interest in protecting the due process rights of absent class members and of defendants. Understanding the relationship and balance of these at times conflicting interests is essential to a proper appreciation of Rule 23's power and pitfalls. Any evaluation of the Rule 23 criteria must be conducted with its underlying merits-oriented goals in mind. Given the importance of the class action to society as a whole, the goals of Rule 23 should not be frustrated by a hypertechnical reading of its requirements.
In light of RICO and Rule 23's purposes, the instant case is well-suited for class certification. If their allegations are proven, plaintiffs and class members are private individuals who have been deliberately wronged by powerful corporations. Their claims are largely the same; all were allegedly defrauded as a result of a common fraudulent scheme developed and executed by the defendants over several decades in order to protect the viability of the cigarette industry and to maintain and increase profits. Any economic losses of individual plaintiffs, although significant to each, would be minimal in comparison with the costs of individual litigation against the multi-billion dollar enterprise alleged to have committed the claimed fraud.
Plaintiffs meet the requirements of Rule 23(b)(3). They have demonstrated that there is more than enough merit to their case to justify the time and expense of a consolidated trial. The Court of Appeals for the Second Circuit would not require even that showing to approve certification. See Visa Check, 280 F.3d at 135 (on motion for certification, plaintiffs bear no burden to demonstrate merits of case); Caridad, 191 F.3d at 293 (same).
Aggregate litigation is the most appropriate way to resolve plaintiffs' claims.
Plaintiffs and defendants each bring multiple motions for exclusion in limine of opposing expert witnesses, pursuant to Federal Rules of Evidence 104(a), 403, 701, and 702. On September 22, 2005, this court granted defendants' motion to exclude the expert testimony of Dr. Robbin Derry on the ground that testimony related to business ethics is not sufficiently related to the facts at issues in this case. See 2005 WL 2303823 (E.D.N.Y. Sept.22, 2005). On September 27, 2005, this court granted defendants' motion to limit testimony by plaintiffs' expert John C. Beyer regarding his "disgorgement model" and his "price impact model"; admitted the testimony of plaintiffs expert Dr. Richard W. Pollay; and admitted in part the testimony of plaintiffs expert Dr. K. Michael Cummings. See 2005 WL 2401647 (E.D.N.Y. Sept. 29, 2005). The memorandum and order on Daubert issues dated September 29, 2005 is deemed embodied in this opinion. Set out in Part VIII.F, infra, are the names and backgrounds of the experts thus far relied on by the parties, with particular emphasis on those they challenge under Rule 702 of the Federal Rules of Evidence. Because of the presentation of new data and analysis, as well as additional briefings, the court has readdressed and carefully reconsidered the reports of experts already ruled upon.
The key provisions are rules 702 and 703 of the Federal Rules of Evidence, embodying the basic principles of Daubert v. Merrell Dow Pharms., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993). They are:
Rule 703:
In some instances the experts are also fact witnesses, requiring satisfaction of Rule 701 of the Federal Rules of Evidence covering opinions of non-experts.
While a detailed analysis for such in limine matters is not required, a gatekeeping function is conferred upon the
The parties have agreed that the court should make its findings based solely on the submitted papers without an evidentiary hearing. See Tr. of Status Conference of July 31, 2006. Since much of the expert evidence, and the experts who are expected to give it, are the same or similar to that received at prior trials and proceedings in this court, reliance on their backgrounds, reports and depositions rather than full in-court testimonial hearings is appropriate.
C.
Witnesses may be qualified as experts if they possess specialized knowledge, skill, experience, or education. See Fed.R.Evid. 702. In keeping with the "liberal thrust" of the Federal Rules and their "general approach of relaxing the traditional barriers to `opinion' testimony," Daubert, 509 U.S. at 588-89, 113 S.Ct. 2786, the standard for qualifying expert witnesses is liberal. Assertions that the witness lacks particular educational or other experiential background, "go to the weight, not the admissibility, of [the] testimony." McCullock v. H.B. Fuller Co., 61 F.3d 1038, 1044 (2d Cir.1995). If the expert has educational and experiential qualifications in a general field closely related to the subject matter in question, the court will not exclude the testimony solely on the ground that the witness lacks expertise in the specialized areas that are directly pertinent. See, e.g., Stagl v. Delta Air Lines, Inc., 117 F.3d 76, 80 (2d Cir.1997) (expert witness qualified when experience, knowledge, or training related to general area, not to specific question before trier of fact).
In deciding whether to allow the witness to give expert testimony the primary issue is whether the expertise provides the witness with the ability to assist the finder of fact in deciding the issues before it. This inquiry is subsumed within
In inquiring into the potential helpfulness of the proffered expert testimony, the court decides whether it concerns matters requiring assistance to the kind of people expected to sit on the jury. See United States v. Mulder, 273 F.3d 91, 101-02 (2d Cir.2001). The evidence or testimony must "assist the trier of fact to understand the evidence or to determine a fact in issue." Fed.R.Evid. 702. See also Daubert, 509 U.S. at 591, 113 S.Ct. 2786.
Expert testimony should not merely reiterate arguments based on inferences that can be drawn by laypersons; those can properly be advanced by the parties in their summations. Neither should it include conclusory testimony that "undertakes to tell the jury what result to reach . . . [or] attempts to substitute the expert's judgment for the jury's." United States v. Duncan, 42 F.3d 97, 101 (2d Cir.1994). Freely admitted is expert testimony that is likely to substantially assist the average person in understanding the case—even if it simply explains facts and evidence already in the record. See Mulder, 273 F.3d at 101-02.
After determining that the requirements of general helpfulness and specific "fit" are met, the court engages "in a balancing . . . to determine whether the probative value of the proffered evidence substantially outweighs its danger of unfair prejudice." United States v. Jakobetz, 955 F.2d 786, 794 (2d Cir.1992); Fed.R.Evid. 403. Because "expert evidence can be both powerful and quite misleading," the court, in weighing possible prejudice against probative force under Rule 403, "exercises more control over experts than over lay witnesses." Daubert, 509 U.S. at 595, 113 S.Ct. 2786. See also Nimely, 414 F.3d at 397 ("[T]he Supreme Court, echoed by members of our own court, has noted the uniquely important role that Rule 403 has to play in a district court's scrutiny of expert testimony, given the unique weight such evidence may have in a jury's deliberations."). In deciding possible probative value of the expert's proposed testimony against the potential for confusion or over-reliance by the jury, it cannot be assumed that a jury of this district "will be so dazzled or swayed as to ignore evidence suggesting that an experiment was improperly conducted or that testing procedures have not been established." Jakobetz, 955 F.2d at 797.
Defendants object to plaintiffs' experts' reliance on many of the scientific studies in Monograph 13 and elsewhere because these materials consider the effect of defendants' alleged fraud on all smokers of low tar products, not just those bearing the "lights" descriptor. Imperfect correlation is no bar to scientific evidence. With respect to surveys, for example:
Shari Seidman Diamond, "Reference Guide on Survey Research," in Reference Manual on Scientific Evidence (FJC, 2d ed.2000), at 241. While evidence that pertains to a broader class than that represented by plaintiffs is not preferred, it may still be useful. See, e.g., Schieffelin & Co. v. Jack Co. of Boca, Inc., 850 F.Supp. 232, 246 (S.D.N.Y.1994) (using survey as evidence of trademark infringement, notwithstanding its overbreadth, because it was "more likely than not to shed some light" on the issue of confusion) (cited in Diamond, supra, at 242). Studies evaluating broadly the beliefs of low tar smokers generally are relevant to the beliefs of "light" smokers more specifically. See Diamond at 242 ("An overinclusive universe generally presents less of a problem in interpretation than does an underinclusive universe."). See also Fed.R.Evid. 401 ("`Relevant evidence' means evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence.").
The jury's fact-finding and credibility-determining abilities—the skills that our legal system relies on juries to provide— can evaluate and integrate most expert testimony. A bent towards exclusion to permit the court to take the case away from the jury is frowned upon.
The most challenging and controversial gatekeeping role, as set out in Daubert and elaborated in Kumho, is that of ascertaining the reliability of proffered testimony, or "whether the reasoning or methodology underlying the testimony is scientifically valid." Daubert, 509 U.S. at 592, 113 S.Ct. 2786. This is partly because "[u]nlike an ordinary witness [governed by Rule 701], an expert is permitted wide latitude to offer opinions, including those that are not based on firsthand knowledge or observation." Daubert, 509 U.S. at 590, 113 S.Ct. 2786. The exception made for such experts "is premised on an assumption that the expert's opinion will have a reliable basis in the knowledge and experience of his discipline." Id.
The Daubert court supplied the following nonexhaustive guidelines for analysis of the reliability of expert testimony: (1) "whether it can be (and has been) tested"; (2) "whether the theory or technique has been subjected to peer review and publication"; (3) "the known or potential rate of error"; and (4) "general acceptance" within the scientific community. Daubert, 509 U.S. at 593-94, 113 S.Ct. 2786. These guidelines are not to be construed as a "definitive checklist." Id. at 593, 113 S.Ct. 2786. The applicability of any one factor will depend "upon the particular circumstances of the particular case at issue." Kumho, 526 U.S. at 137, 119 S.Ct. 1167.
While, preferably, the content of the expert's testimony will grow "naturally and directly out of research [the expert or others have] conducted independent of the litigation," Daubert v. Merrell Dow Pharmaceuticals, 43 F.3d 1311, 1317 (9th Cir. 1995), testimony based on research conducted solely for litigation is admissible as long as the expert "employs in the courtroom the same level of intellectual rigor that characterizes the practice of an expert in the relevant field." Kumho, 526 U.S. at 152, 119 S.Ct. 1167.
Of primary importance in determining reliability of expert testimony is the methodological soundness of the expert's study. See Liriano v. Hobart Corp., 949 F.Supp. 171, 177 (S.D.N.Y.1996).
To be considered is whether there is "a sufficiently rigorous analytical connection between [the expert's] methodology and the expert's conclusions," Nimely, 414 F.3d at 397, and whether the scientific principles and methods have been reliably applied by the expert to the facts of the case. Unfounded extrapolations not supported by, or sufficiently related to, scientific data or expertise should be rejected; opinion that "is connected to existing data only by the ipse dixit of the expert" need not be admitted. General Elec. Co. v. Joiner, 522 U.S. 136, 146, 118 S.Ct. 512, 139 L.Ed.2d 508 (1997). Expert opinions based on insufficient facts or data, or on unsupported suppositions is not acceptable. See Fed.R.Evid. 702(1). Anecdotal evidence and "generalized assumptions" are inadequate bases for an expert report. United States v. Tin Yat Chin, 371 F.3d 31, 40-41 (2d Cir.2004).
Subjective methodology, as well as testimony that is insufficiently connected to the facts of the case, have been relied upon by appellate courts as grounds for rejection of expert testimony. See, e.g., O'Conner v. Commonwealth Edison Co., 13 F.3d 1090, 1105-07 (7th Cir.1994); Guidroz-Brault v. Missouri Pacific R.R. Co., 254 F.3d 825, 831 (9th Cir.2001). Finally, it is properly held that sound scientific methodology requires a scholar to make some effort to account for alternative explanations for the effect whose cause is at issue. See, e.g., Kudabeck v. Kroger Co., 338 F.3d 856, 860-61 (8th Cir.2003); McCorvey v. Baxter Healthcare Corp., 298 F.3d 1253, 1256-57 (11th Cir.2002).
The mere fact that an expert's testimony conflicts with the testimony of another expert or scientific study does not control admissibility. See Fed.R.Evid. 702 advisory committee note (2000) ("When a trial court, applying this amendment, rules that an expert's testimony is reliable, this does not necessarily mean that contradictory expert testimony is unreliable."). If two contradictory expert opinions meet the requisite threshold of reliability, it is the function of the factfinder, utilizing the "conventional devices" of "cross-examination, presentation of contrary evidence, and careful instruction on the burden of proof," to determine which is the more trustworthy and credible. Daubert, 509 U.S. at 596, 113 S.Ct. 2786. It is worth noting in this respect that defendants' experts have a less demanding task, since they have no burden to produce models or methods of their own; they need only attack those of plaintiffs' experts. Contradiction is to be expected and is often unresolvable without trial.
When considering reliability factors under Rule 702 and Daubert, it is important to recall the Supreme Court's caution that the analytical focus should be on principles and methodology. See Liriano, 949 F.Supp. at 177. Expert testimony should not be rejected simply because the conclusions reached by the witness
It is critical that "doubts about whether' an expert's testimony will be useful should generally be resolved in favor of admissibility unless there are strong factors such as time or surprise favoring exclusions." Jakobetz, 955 F.2d at 797. Any more rigorous approach would deny the jury's constitutional role.
No individual expert's proffered testimony in the instant case by itself presents a decisive analysis on the critical reliance and damage questions. Defendants, through their experts and in their briefs, charge that this failure to come up with "a number" requires dismissal of plaintiffs' claims. Yet legal standards of proof are not so demanding.
In re Ephedra Prods. Liab. Litig., 393 F.Supp.2d 181, 190, 193 (S.D.N.Y.2005). See also id. at 193 ("Although th[e preponderance] standard may lead to what some scientists might consider an unacceptably high error rate in jury verdicts, the law has tolerated the jury error rate for centuries because it has not yet found a better way of adjudicating disputes"; a court should "not treat Daubert's dictum about scientific validity as authority for increasing the burden of proof imposed by substantive law").
Ferebee v. Chevron Chem. Co., 736 F.2d 1529, 1536 (D.C.Cir.1984). See also Hodges v. Sec'y of Health & Human Servs., 9 F.3d 958, 967 (Fed.Cir.1993) ("Scientists as well as judges must understand the reality that the law requires a burden of proof, or confidence level, other than the 95 percent confidence level that is often used by scientists to reject the possibility that chance alone accounted for the observed differences.") (internal citations and quotation marks omitted).
Plaintiffs' proof is akin to a pointillist painting by Georges Seurat. When a juror stands back from the canvas and looks at the big picture, he or she may well discern clearly enough an industry allegedly based on fraud and coverup that has taken more than a half century to begin to admit its alleged subtle lies to the public designed to sell its product. Viewed in context, the proof of acts of defendants and the various experts' opinions permits a finding of damages to the class with sufficient precision to allow a jury award. See also Part III.D.3, supra.
Taken up in order are first, the challenged plaintiffs' expert reports; second, the challenged defendants' expert reports, and third, those whose admissibility does not appear to have been seriously challenged. In the case of experts in the third
By the memorandum and order of September 29, 2005, discovery was extended to permit defendants to evaluate the work of the following experts: Dr. John C. Beyer, Dr. John R. Hauser, Dr. Jeffrey E. Harris, Judith Wilkenfeld, Matthew L. Myers, Laurence Tribe, Katherine Kinsella, Robert Proctor, Richard Redfern, Dr. Paul Slovic, Dr. Joel Cohen (new materials), Dr. Marvin Goldberg, Dr. Stanley Presser, and others. Except as their testimony had been excluded on relevancy grounds, see 2005 WL 2293381, the court was not then in a position to render a Daubert opinion on their work. It was proposed to develop by depositions any objection to their testimony and reports according to a schedule developed by the magistrate judge. Id. That discovery has now taken place.
The order of September 29th also dealt with plaintiffs' motion to exclude testimony of a number of defendants' proposed experts who appear to be qualified and whose professional background should allow them, individually and in combination, to opine scientifically on cigarette "safety"—i.e., the amount of carcinogenic and other toxic substances released by cigarettes with less tar, and their effect on smokers. They were Dr. Kenneth A. Mundt, Ph.D., an epidemiologist; Dr. Lawrence S. Mayer, a statistician; Dr. William E. Wecker, a statistician; Dr. Jane Y. Lewis, a chemist; Dr. Kenneth F. Podraza, a chemist; Dr. Jeffery Gentry, a chemist; Dr. Andrew T. Mosberg, a toxicologist; Dr. Edward A. Robinson, a toxicologist; and Dr. Carr J. Smith, a toxicologist. See Mem. in Supp. of Pls.' Mot. to Excl. Exp. Test. that "Light" Cigs. are Safer than Reg. Cigs. 1-2 (Docket No. 691-2).
All of the scientific specialties represented by these experts employed by defendants bore on a critical factor in the case—the amount of tar and other noxious substances inhaled by cigarette smokers when smoking "light" cigarettes and the dangers they pose to the human body. While plaintiffs' experts and others in the public health community may differ with their conclusions, that, alone, is no reason to exclude under Daubert. That a person is an employee of a party, rather than an independent expert is no ground, in and of itself, to exclude under Rule 702.
Following an opportunity for further full discovery of all experts, a number of plaintiffs' experts were challenged in final Daubert briefs.
Even the lengthy excerpts included here do not do justice to the usefulness of proffered reports. Except where indicated in discussion, the opinions of both plaintiffs' and defendants' experts are supported by internal documents, scientific research, and other appropriate materials.
Citations are generally omitted without comment. All emphasis is in the original. No effort has been made to conform typography in the reports to that of the opinion except where necessary to avoid confusion.
1. Challenges to Plaintiffs' Experts
a. John C. Beyer
Dr. John C. Beyer has filed a class certification report, a report on computation of damages, and an affidavit responding to defendants' motion to exclude his prospective testimony. Defendants' experts Kevin M. Murphy, Bruce C. Owen, and William Wecker have attacked his analysis. All three of these defense experts are qualified in their fields. See
He is President of Nathan Associates Inc., an economic and financial consulting firm established in 1946. It provides economic research and analysis to public and private clients in the United States and abroad. He has been associated with Nathan Associates as an economist for approximately 34 years. As part of his professional career he has been employed by the Ford Foundation and conducted research at the Brookings Institute. In addition to his consulting and research work, he is an Adjunct Professor at American University in Washington, D.C. He earned a degree of Bachelor of Arts from the University of the Pacific in 1962 and a degree of Doctor of Philosophy from Tufts University's Fletcher School in 1966. He has professional experience with the analysis of economic issues involving antitrust litigation, including matters concerning the structure, conduct, and performance of industries; the determination of economic impact on companies and individuals as a result of alleged market restraints; and the estimation of damages arising from such restraints. In several instances, his analyses have addressed the issue of whether generalized proof is available to show impact upon multiple plaintiffs and plaintiff classes, as well as the development of methodologies to assess damages on a class-wide basis. He submitted an affidavit in this litigation concerning economic issues pertaining to class certification. His extensive publications and affiliations support the conclusion that he is well qualified to testify in the instant case on relevant issues.
His amended report reads in part as follows and responds to the contentions of his critics:
I utilize a methodology that determined the effect of the alleged fraudulent behavior by defendants upon the market price for light cigarettes. I refer to this methodology as the "price impact model." The price impact model is a multiple regression model, which explains the role that several other variables play in determining the value of the single variable to be explained, which in this case is cigarette prices. In constructing the price impact model I attempt to control for all the factors that might affect cigarette prices. The theoretical justification for the price impact model lies in the effect that the alleged fraudulent behavior would have had on cigarette prices. To the extent that light cigarettes allayed the health concerns of smokers, the result would have been increased cigarette demand. The increase in total cigarette demand resulted in higher consumption of cigarettes than otherwise would have been the case, which resulted in higher prices paid by consumers of cigarettes, including consumers of light cigarettes. The price impact model identifies the extent to which prices of cigarettes were higher as a result of the alleged fraudulent behavior.
The price impact model properly controls for factors affecting price
Cigarette price is the dependant variable
Explanatory variables: Cigarette consumption
Income
Population
Taxes
Advertising expenditures
Costs of producing cigarettes
The "knowledge impact" variable is a useful measure of information on health hazards
Range of damage estimates
Adjustments to damages
The overcharge based on price impact
Further Adjustments for Reliance Concerns
Defendants originally moved to exclude the testimony of Dr. Beyer. It was contended that his "price impact model" and his "profits disgorgement model" fail to meet Daubert requirements.
The profits disgorgement model was excluded by the order of September 29, 2005. See 2005 WL 2401647. As noted in an earlier memorandum and order granting defendants' motion to dismiss claims for equitable relief, disgorgement is not an appropriate remedy in this case. See 2005 WL 2303821. Under the disgorgement theory, the profits made on light cigarettes would be used to support a claim for overcharges. This theory was ruled to be such an indirect indicator of excess price that it was not sufficiently probative to permit admission as an element of damages. Moreover, focusing on profits might tend to be unduly prejudicial under Rule 403 of the Federal Rules of Evidence. The motion to exclude the profit disgorgement model was granted.
The price impact model was not ruled irrelevant, but it was temporarily excluded in its then form. The following assumptions upon which the model depended were not supported: 1) that everyone who purchased "light" cigarettes did so in reliance on the alleged fraud that they were safer and 2) that it takes eight years for knowledge concerning the health risks of smoking to affect consumer behavior—a result that, according to defendants, caused the model to produce the highest damages possible. The first is inconsistent with common sense and the evidence generally: all consumers do not react in the same way. The second had no survey or other acceptable data to support it. Plaintiffs' argument to the contrary was not persuasive.
This ruling did not preclude making "assumptions" of a different time lag or of averages, so long as the assumptions had an adequate basis in evidence or theory. The opinion in its then form also suffered from unwarranted and excessive precision. In matters of this kind a range of possible reasonable conclusions is often all that can be obtained. See, e.g., Eric Stallard, Kenneth G. Mouton and Joel E. Cohen, Forecasting Product Liability Claims, Epidemiology and Modeling in the Manville Asbestos Case, 89 ff. (2003) (discussing uncertainty in forecasts based on indirect estimates of asbestos exposure); id. xix (the "models and methods" described have "applicability beyond product liability"). The court noted that, "Should the expert revise his opinion to take a more realistic account of variables and supply a reasonable basis for a trier's evaluating where within a spectrum of possibilities the `lag' lies, the court will reconsider the Daubert issue." 2005 WL 2401647, at *4. The court was aware that Dr. Beyer's past work has been criticized by other courts and academics. See Mem. in Supp. of Defs.' Mot. to Excl. Test. of Dr. Beyer 1-2.
Possible lack of credibility is not a sufficient basis for a decision to exclude. See Pls.' Mem. in Opp'n to Mot. to Excl. Test. of Dr. Beyer (citing many cases in which his testimony was accepted) (Docket No. 703). This witness was not precluded from rebutting defendants' expert reports within the scope of his professional training and accomplishments as an economist. See Expert Report of John C. Beyer, Ph.
Upon consideration of the materials now relied upon by the witness, his amended report which takes account of defendants' objections, is admissible under Rules 702 and 703 of the Federal Rules of Evidence.
The analysis of defense experts will permit the jury to determine whether Dr. Beyer has sufficiently met their objections so as to allow them to lend credence to his report. The methods of statistical analysis used by Dr. Beyer are acceptable. Whether he utilized them correctly—which defendants deny—is a disputable matter a jury can decide.
The proposed testimony of John C. Beyer and his supporting amended report meet the standards of Rules 702 and 703 of the Federal Rules of Evidence.
b. David M. Burns
Professor David M. Burns is a medical doctor, professor of medicine and professor of family and preventive medicine at the University of California, San Diego School of Medicine. He is currently licensed to practice medicine in the State of California, and is board certified in Internal Medicine and Pulmonary Medicine, with a certificate of special competence in Critical Care Medicine. He received his doctorate in medicine at Harvard Medical School in 1972. He trained in Internal Medicine on the Harvard Medical Service at Boston City Hospital from 1972 through 1974 and in Pulmonary Medicine at the University of California, San Diego School of Medicine from 1976 through 1979. He was medical officer for the United States National Clearinghouse for Smoking and Health at the Centers for Disease Control of the U.S. Public Health Service. His responsibilities at that time included the preparation of the 1975 United States Surgeon General's Report on the Health Consequences of Smoking and editing the 1976 Surgeon General's report. He has been an author, editor, or reviewer for each of the annual reports of the United States Surgeon General on the Health Consequences of Smoking. Specifically, he authored multiple chapters in the 1979 report. He was Consulting Scientific Editor from 1980 through 1983, and from 1984 through 1986 he was the Senior Scientific Editor for these reports. Since that time, he has been a Senior Reviewer for each of the reports including the "Health Consequences of Smoking: Addiction" in 1988, "Health Consequences of Smoking: Twenty-Five Years of Progress" in 1989; "Health Benefits of Smoking Cessation" in 1990, "Preventing Tobacco Use Among Young People" in 1994, "Tobacco Use Among U.S. Racial/Ethnic Minority Groups" in 1998, "Reducing Tobacco Use" in 2000, "Women and Smoking" in 2001, and "The Health Consequences of Smoking" in 2004.
Dr. Burns was Senior Scientific Editor and contributing author for a series of tobacco control monographs for the National Cancer Institute, including Monograph 13, which was published in conjunction with the United States Department of Health and Human Services and the National Institutes of Health. He co-authored Chapters 1 and 4 of that publication. In addition, he has been a consultant to the National Cancer Institute and served on the Policy Advisory Committee for the COMMIT trial conducted by the National Cancer Institute. He has written extensively on the disease consequences of smoking, including authoring a chapter titled "Nicotine Addiction" in Harrison's Principles of Internal Medicine. He consulted
The extensive report of Dr. Burns includes an analysis of publications bearing on smoking risks; general and scientific knowledge of the effect of smoking on health, including lung cancer, coronary heart disease, and obstructive pulmonary disease; the history of tobacco use in the United States; the purported health benefits of so-called "low tar yield" products; knowledge of the actual yields to smokers of "light" cigarettes; the alleged deceptions of the cigarette manufacturers; the lack of disease risks in smoking "lights"; and the higher rate of smoking and disease caused by defendants' exploitation of "lights." His report concludes:
Defendants strongly oppose introduction of Dr. Burns's report or testimony. David M. Burns is, however, fully qualified and meets the requirements of Rules 702 and 703 of the Federal Rules of Evidence. He will not be permitted to testify that defendants lied, but he may contrast what was known and what was suggested to the public by defendants, leaving to the jury the question of fraud.
c. Joel B. Cohen
Professor Joel B. Cohen currently serves as Distinguished Service Professor of Marketing and Adjunct Professor of Anthropology at the University of Florida, a position held since 1988. He was chairman of the Marketing Department at the University of Florida from 1974 until 1983 and created the Center for Consumer Research in 1975. From 1972-74, he was Vice President and Director of Social Science Research at National Analysts, a major survey behavior organization which was part of consultant firm Booz, Allen & Hamilton. Prior to that he was a tenured member of the marketing faculty at the University of Illinois.
He has been president of the Association for Consumer Research, a member of the American Psychological Association, editor of the Journal of Public Policy and Marketing, and a member of the editorial boards of the Journal of Consumer Research and the Journal of Marketing. He also served as a reviewer for a number of psychology and marketing journals and assessed the quality of manuscripts submitted for national conference presentations in these two fields.
He has served as a consultant on advertising, marketing and research design to the Federal Trade Commission on many occasions since 1972, participating in many regulatory actions. In the course of that work and other professional activities, he reviewed hundreds of marketing and advertising plans and studies. He also served as a consultant to the National Academy of Sciences Panel on the Impact of Drug Use and Misuse and advised the National Institute on Alcohol Abuse an Alcoholism on mass media approaches to alcohol abuse prevention. His articles on these public policy issues have appeared in the American Journal of Public Health, Journal of Public Policy and Marketing, and a number of edited volumes.
He has extensive knowledge of the cigarette industry, partially through involvement in a number of FTC activities. Most recently he served as the FTC's expert on marketing, advertising, and consumer behavior in their investigation and case against R.J. Reynolds for their, so called, "Joe Camel" campaign. He was a principal plaintiffs' witness and consultant in a number of important cigarette cases, several dealing specifically with "Light" cigarettes. On behalf of the President's Cancer Panel, he conducted a national probability study of smokers' understanding of advertised tar numbers, culminating in an American Journal of Public Health lead article, Smokers' knowledge and understanding of FTC tar numbers: Health policy implications, published in 1996. This article is referred to in several chapters of Monograph 13, for which he also served as peer reviewer. His previous work on cigarette marketing and advertising issues is reflected in his report to the Federal Trade Commission on information processing issues involved in communicating cigarette warning information to smokers and subsequent invited testimony to the United States Senate Commerce Committee and the United States House of Representatives ("The Protect Our Children from Cigarettes Act of 1989"). He also served as a peer reviewer for a number of government-sponsored reports on smoking starting with the 1989 Surgeon General's Report. He has written a number of other articles relating to cigarettes. Further details of his curriculum vita support the conclusion that Professor Cohen is skilled in fields relevant to this case.
His opinion is summarized as follows:
His conclusion is:
Defendants' brief and documents supporting their Daubert motion to exclude the testimony of Dr. Cohen are based upon three arguments:
The first and second points are not convincing. Dr. Cohen's extensive supporting documents and wide experience in marketing and tobacco matters meet the requirements of Rules 401, 702, and 703. The opinions on these points will be helpful to a jury, even if the jury rejects them in accepting contrary opinions.
The third point is troublesome. In effect, Dr. Cohen is opining that everyone who smoked "light" cigarettes believed they were safer than traditional cigarettes,
The opinion need not be accepted in whole by the jury. See Girden v. Sandals Int'l., 262 F.3d 195, 204 (2d Cir.2001) ("[J]urors have the latitude to analyze the evidence in a case, to accept part of it and to reject part of it, and to draw any inferences from the testimony, exhibits, and circumstances that they deem reasonable."). It supports the position that the advertising programs of defendants and their use of the "lights" descriptor affected purchases by many smokers. How many is a decision that the jury can rationally reach after cross-examination of this witness and consideration of opposing experts.
Dr. Joel Cohen's testimony and report are admissible under Rules 702 and 703 of the Federal Rules of Evidence. See also Price, Appendix C at ¶¶28, 30, infra (finding Dr. Cohen credible).
d. K. Michael Cummings
Dr. K. Michael Cummings' opinion was challenged by defendants in a motion to partially exclude. Following further discovery, they renew the motion.
Dr. Cummings is Chairman and a cancer research scientist in the Department of Health Behavior at the Roswell Park Cancer Institute and Director of the Tobacco Cessation Center of the institute. He is an Associate Research Professor of the Department of Experimental Pathology and Epidemiology at State University of New York at Buffalo, and a Professor of the Department of Social and Preventive Medicine at that university. His Ph.D. is in Health Behavior from the University of Michigan. He has had an extensive leading role in professional editorial boards and as a reviewer in leading journals. He has received many awards for his work. He has had 40 research grants and contracts, many in the field of smoking, and authored over 200 publications. He has given testimony and depositions in other tobacco cases.
In the instant case, he interviewed the named plaintiffs. Dr. Cummings is prepared to testify to two opinions:
He opines as follows:
Starting to smoke at a young age
Regret about ever starting to smoke
Belief that filtered cigarettes are safer than unfiltered cigarettes
Belief that "light" cigarettes expose the user to less bad stuff in the smoke
Belief that "light" cigarettes are an excuse to delay quitting smoking
Recognition of "light" as compared to Yull-flavored" cigarette brands
Unsophisticated understanding of how cigarette design influences smoking behavior
THE ACTIONS OF CIGARETTE MANUFACTURERS HAVE CONTRIBUTED TO SMOKERS' MISUNDERSTANDING ABOUT LIGHT CIGARETTES
Cigarette companies have lied about manipulating nicotine in cigarettes
"Philip Morris does not `manipulate' nicotine levels."
The cigarette companies have misled smokers about health risks
(Emphasis in original.)
Defendants concede that Dr. Cummings, who was trained in public health, may testify on smokers' behavior and attitudes. They object to his opinion that defendants have "lied" or "misled" and to the introduction of what they characterize as a nonscientific survey of named plaintiffs.
Except as indicated below, the opinions of Dr. Cummings are supported by the record he relies upon and meet the requirements of Rules 702 and 703 of the Federal Rules of Evidence. References to "lies" and "misleading" by defendants will be stricken since the jury can decide the truthfulness of defendants' claims without this expert. Dr. Cummings may, however, state how smokers would be expected to react to, or rely upon, statements of defendants. His conclusion that cigarette manufacturers "manipulate" nicotine in cigarettes is not admissible, but he may testify that they control the nicotine the smoker will receive. He may testify about implicit and explicit statements about the health risks of cigarettes by defendants and the actual health risks. He may not testify that defendants themselves did not believe these claims.
He may testify to his interviews with named plaintiffs if he, or other experts, testify that this is an appropriate way to obtain the information sought. If defendants wish they may have an instruction that what the interviewees in this limited "survey" said may not be depended upon as true or as representing universal beliefs, but is being admitted only to show part of the basis of Dr. Cummings' opinions.
Subject to the above limitations, K. Michael Cummings may testify pursuant to Rules 702 and 703 of the Federal Rules of Evidence.
e. Michael J. Dennis
Michael J. Dennis, Ph.D., is the author of a report upon which he based his testimony
At the time of the preparation of the report for the Price case, he was a Vice President and Managing Director for Government and Academic Research for Knowledge Networks, based in Menlo Park, California. He joined Knowledge Networks in February 2000 as the Vice President for Operations. During ten months in this position he was responsible for survey research for the company and designed and implemented some twenty surveys in the areas of health, social public policy, and consumer research. He reviewed and provided design assistance for approximately a dozen market research surveys that were being conducted by his colleagues. From 2001 to present, he has managed all research conducted by Knowledge Networks on behalf of federally funded principal investigators who conduct health, economic, social, and political research. He has been personally involved in the design and implementation of over a hundred statistical surveys in the last four years, and over fifty such surveys prior to the work he conducted for the Price case. Among federal sponsors of his statistical surveys are the United States Centers for Disease Control and Prevention and United States Environmental Protection Agency.
Prior to joining Knowledge Networks, he was a senior Scientist at Abt Associates, Inc., a social science consulting firm based in Cambridge, Massachusetts. While there, he managed several largescale federal surveys and was Associate Project Director for the National Immunization Survey. At the time, this survey was the largest federally funded telephone survey conducted for the government. In his seven years at Abt Associates, he managed statistical surveys for the Social Security Administration, Office of National Drug Control Policy, and National Cancer Institute. The survey he did for the Price case was done using the Knowledge Networks "web-enabled panel." The web-enabled panel is a methodology available for conducting surveys on the internet using nationally representative samples of United States households.
He claims that the methodology used for the Price case is widely recognized as producing valid and reliable survey data and has been widely used in research conducted by federal government, university, and other researchers. In his opinion the survey results he obtained for the Price case are reliable and valid, and constitute a sound basis upon which Dr. Jeffrey Harris could produce his expert opinion for the Price case—and in the current case, in support of his "loss of value" approach. See Part VIII.F.1.h, infra.
Dr. Dennis lists sixteen publications, none dealing with tobacco. A number cover research techniques.
Defendants' detailed analysis of the Dennis methodology suggest reasons why it should not be relied upon by a jury. Nevertheless, his methods and conclusions fall well within appropriate practice in such studies. They, and the proposed testimony
f. Robbin Derry
Plaintiffs have proffered Dr. Robbin Derry, a Research Professor at the Kellogg School of Management at Northwestern University, to render her expert opinion on the ethical nature of the defendants' conduct in developing and marketing "light" cigarettes. Dr. Derry is a well-qualified expert on business ethics. Defendants move to exclude her testimony primarily on relevancy grounds.
The issues in the litigation involve rules of substantive and procedural law that are only indirectly informed by ethical considerations. Dr. Derry's opinions may be useful to those formulating rules of law. They will not be relevant to the triers' consideration of the evidence relevant to findings of fact required by the rules of law.
Irrelevant evidence is inadmissible. See Rule 402, Fed.R.Evid. Relevant evidence is defined as "evidence having any tendency to make the existence of any fact that is of consequence to the determination of the action more probable or less probable than it would be without the evidence." Fed. R.Evid. 401. Since the ethical rules relied upon by Dr. Derry are not relevant, and therefore not admissible, the motion to exclude is granted on the ground of lack of relevancy.
The testimony of Dr. Derry should also be excluded because it might mislead the jury by confusing it about the differences between rules of law and their own ethical judgments. See Rule 403, Fed.R.Evid.
The motion to exclude Dr. Derry's opinion and testimony is granted.
g. Marvin E. Goldberg
Dr. Marvin E. Goldberg is the Irving & Irene Bard Professor of Marketing at Pennsylvania State University. He has held this position since 1991. In 1998-99, he served as Interim Dean of the Smeal College of Business Administration at Pennsylvania State. From 1999 to the present, he has served as Chairman of the Marketing Department at Pennsylvania State. From 1970 to 1991, he was a professor at McGill University in Montreal, Canada. He received his Ph.D. in Marketing (minors in Economics and Psychology) from the University of Illinois in 1972, an M.A. in Sociology from Columbia University in 1967, and a B.A. from McGill University in 1965.
He is past President of the Society for Consumer Psychology (Division 23 of the American Psychological Association). He is currently a member of the editorial board for the Journal of Consumer Research, Journal of Public Policy and Marketing, Journal of Social Marketing, and International Quarterly Journal of Marketing.
He is an expert in marketing as it relates to advertising, packaging, promotion, and public relations, with special knowledge of cigarette marketing and the impact of tobacco advertising and promotion on youths and adults.
His published research has focused on the effects of advertising on adults and youth. These include a co-edited book, Social Marketing: Theoretical and Practical
The opinion of this witness is relevant. It is in part as follows:
An affidavit of Dr. David W. Stewart, Robert E. Brooker Professor of Marketing in the Gordon S. Marshal School of Business at the University of Southern California, and a defense expert, contested Dr. Goldberg's conclusions. See Part VIII. F.3.v, infra. Dr. Stewart has wide experience in tobacco and related fields and is fully qualified as an expert supporting his opinions. His conclusion was:
Both experts can be useful to the jury. It will be in a position to discount Dr. Goldberg's broad assessments, if appropriate, with the more measured conclusions of Dr. Stewart. Both experts' opinions meet the requirements of Rules 702 and 703 of the Federal Rules of Evidence.
Dr. Jeffrey Harris has submitted reports dated February 28, 2005, March 28, 2005, and September 6, 2005.
He is a tenured professor of economics at the Massachusetts Institute of Technology and a practicing primary care physician at the Massachusetts General Hospital. He appeared before this court as an expert witness in Falise v. American Tobacco Co., 107 F.Supp.2d 200 (E.D.N.Y. 2000), and in Blue Gross & Blue Shield of New Jersey v. Philip Morris, 141 F.Supp.2d 320 (E.D.N.Y.2001). He gave expert testimony on behalf of plaintiffs in Price. See Appendix C, infra. He also testified on behalf of the United States Department of Justice concerning the economics of collusion in United States v. Philip Morris. See Appendix A, supra. His work supports the conclusion of this and other courts that he is qualified as an expert in the field for which his testimony will be proffered.
His February 2005 report reads in part as follows:
The "loss of market" model is excluded on non-Daubert grounds. See Part III. D.l.a, supra.
Defendants properly point out in their objections to Dr. Harris's "loss of value" model that he does not calculate the number of persons who actually relied on defendants' representations, but assumes reliance by every member of the class. Nevertheless, on the assumptions made, the methodology and computations are supportable—even though contested by defense experts. The model can be adjusted according to the jury's finding on the percent of the class that relied on the alleged fraud. See, for example, the lower estimates of 28 percent, 31 percent, and 41 percent of smokers who believed "lights" were safer according to surveys cited in defendants' memorandum seeking to exclude Dr. Harris's testimony, dated June 9, 2006 at p. 12. The issues are appropriate for the jury's resolution. Dr. Harris's work will be helpful to them when subject to cross-examination and contrasting views of experts for both sides.
Jeffrey E. Harris's proposed testimony and the reports on which it is based meet the requirements of Rules 702 and 703 of the Federal Rule of Evidence. See also Blue Cross, Appendix B at Part IV.C.2.a.ii, supra; Price, Appendix C at ¶¶ 83-85, 95-97, infra.
i. John R. Hauser
Dr. John R. Hauser is the Kirin Professor of Marketing at the Sloan School of Management at the Massachusetts Institute of Technology ("MIT"). He serves MIT in a number of capacities, including Head of the Marketing Group, Director of the Center for Innovation in Product Development, and Director of the International Center for Research on the Management of Technology. He is Area Head for Management Science at MIT. The Management Science Area at the MIT Sloan School of Management includes the Marketing Group, the Statistics Group, and other groups. The principal focus of his research and teaching has been in marketing management, product and service development, consumer satisfaction, marketing research, and competitive marketing strategy. He is the author of over sixty articles and papers, as well as the textbooks Design and Marketing of New Products and Essentials of New Product Management. In addition, he has served as editor-in-chief of Marketing Science and held senior editorial positions with Management Science and the Journal of Product Innovation Management. He has received numerous awards for excellence in research and teaching in marketing and marketing research, and was recognized by the American Marketing Association with the Converse Award for "outstanding contributions to the development of the science of marketing." In September of 2001 he received the Parlin Award, "the oldest and most distinguished award in the marketing research field," according to the American Marketing Association.
He has served as an expert witness in connection with a range of disputes. Most of his expert testimony has involved surveys and other market research to measure consumers' attitudes, beliefs, and intentions. He has been called upon to project what consumers would have done in different market scenarios, to measure the importance of product features, to measure the impact of rumors, to evaluate marketing research with respect to advertising claims, and to investigate the potential
His report dated December 19, 2005 included the results of a survey that, using conjoint analysis, sought to determine whether health risks are a significant contributing factor in consumer decisions to smoke "light" cigarettes; what proportion of "light" cigarette-smoking consumers relied on health risks as a significant contributing factor to their decision; and how consumers and the market would react to cigarettes with different levels of health risks. It was accompanied by extensive supporting documents and print-outs of calculations. His study methodology conformed to appropriate standards and appeared to have been properly executed.
It reads in part as follows:
The overall summary of his conclusions is:
Since this proposed testimony will probably be critical in estimation of damages, the report of Dr. Hauser has been strongly attacked by defendants through depositions, documents, and the report of defendants' well qualified expert Dr. David W. Stewart, among others. Dr. Stewart's scientific background is exemplary. His conclusions are:
These differences between the experts are substantial. Given all the other evidence in the case, the jury will be in a position to evaluate the probative force of their positions. The survey conducted by Dr. Hauser may not perfectly represent the class; that does not make it irrelevant or unhelpful. Sample surveys, by their very nature, are sketches, not exact replicas, of the examined population.
David H. Kaye and David A. Freedman, "Reference Guide on Statistics," in Reference Manual on Scientific Evidence (FJC, 2d ed.2000), at 102 (emphasis supplied). Direct and cross-examination, testimony by supporting and opposing witnesses, and argument by plaintiff and defense counsel will provide the additional guidance "needed to justify the inferences" the parties seek to draw from Dr. Hauser's survey.
The proposed testimony of John R. Hauser meets the requirements of Rules 702 and 703 of the Federal Rules of Evidence.
j. Katherine Kinsella
Katherine Kinsella is the president of Kinsella/Novak Communications, Ltd., an advertising and legal notification firm. She has over 30 years of experience in advertising, marketing, and public relations. She is a nationally recognized specialist in media-based notification programs in class actions and bankruptcies. She has developed and directed some of the largest and most complex national notification
She is the author of the "Plain Language Tool Kit for Class Action Notice," published in the October 25, 2002 issue of Class Action Litigation Report; "Quantifying Notice Results in Class Actions—the Dwubert/Kumho Mandate," published in the July 27, 2001 issue of Class Action Litigation Report and the August 27, 2001 issue of the United States Law Week; "The Ten Commandments of Class Action Notice," published in the September 24, 1997 issue of the Toxics Law Reporter, and co-author of "How Viable Is the Internet for Class Action Notice" published in the March 25, 2005 issue of Class Action Litigation Report.
Prior to establishing her firm, she was the Senior Vice President and Director of Marketing and Advertising for the Kamber Group, then the largest independently owned communications company in Washington, D.C. In that capacity she handled national advertising, direct mail and marketing clients. During her twelve years at the Kamber Group, she also served as Director of the Public Affairs Division, which included the firm's public relations, marketing, corporate communications, and advertising operations. She holds a B.A. in Education and English Literature and an M.A. in English Literature. Her experience qualifies her in the field on which she was asked to report.
Plaintiffs' counsel asked that media stories focusing on the health aspects of low tar or "light" cigarettes over a 43-year period be examined for media source, consistency of message, and reach of audience.
Despite the length of time during which stories appeared and the inability to capture coverage in all media due to the lack of records, the results of the analysis seem persuasive and are supported by research on how Americans get their news.
Ms. Kinsella's report reads in part as follows:
Defendants question the criteria, methodology, and completeness of Ms. Kinsella's survey. The exhibits attached to their brief attacking her report raise bona fide questions as to its reliability, particularly as to articles she excluded as peripheral or those she missed. These arguments raise issues that a jury will consider in determining the probative force of this expert's findings. Her research methodology was adequate. Katherine Kinsella's research, report, and proposed testimony meet the requirements of Rules 702 and 703 of the Federal Rules of Evidence.
k. Matthew L. Myers
Matthew L. Myers graduated from the University of Michigan Law School in 1973
The Harvard School of Public Health honored him with the Julius Richmond Award for actions taken to protect the public health. He was also a recipient of the. Surgeon General's Medallion from then-Surgeon General C. Everett Koop. In 2000 he was selected to co-chair a commission appointed by President Clinton to propose recommendations for how to best address the problems facing tobacco farmers and their communities while protecting the public health. This commission produced a report and set of recommendations that were endorsed by the major public health organizations and by the major tobacco growers' organizations. In 1998 he was appointed to the first tobacco advisory committee created by the Director General of the World Health Organization to make recommendations for addressing the problem " of tobacco worldwide.
In his report he opines in part as follows:
Summary of Conclusions
The Cigarette Industry and the FTC
Defendants move to exclude entirely the testimony of Mr. Myers. It was excluded in United States v. Philip Morris, as "basically a speech, not admissible in evidence." See United States v. Philip Morris, 5/16/05 Tr. at 21041-42. The motion to exclude is granted. What the Federal Trade Commission knew, how its smoking test equipment worked, and what information defendants did or did not conceal from it may be proven by documentary evidence and less personally involved experts and through argument to the jury. This testimony and report, even if parts might meet the requirements of Rules 702 and 703 of the Federal Rules of Evidence, are excluded under Rule 403 as cumulative.
1. Blaine F. Nye
Dr. Blaine F. Nye is a financial economist and the President of Stanford Consuiting Group, Inc., which provides research and consulting services in financial economics and related areas to clients, including government agencies, corporations, and law firms. He has a B.A. degree in physics from Stanford University, an M.S. degree in physics from the University of Washington, an M.B.A. degree from Stanford, and a Ph.D. in finance from Stanford. He has served as a consultant or expert witness in the areas of insurance economics, securities litigation, intellectual property, and economic damage analysis. During the past five years he has provided expert testimony in tobacco trial or cases by deposition.
He was retained by counsel for plaintiffs to provide expert opinions on the following issues, during the period commencing on the first date that defendants began selling "light" cigarettes until the present:
His opinion reads in part as follows:
III Summary of Opinions
A.
This report is based upon a standard analysis. Blaine F. Nye was qualified to make the analysis and appears to have made it in good faith with an appropriate effort at accuracy. His report and proposed testimony comply with Rules 702
m. Richard W. Pollay
Defendants continue to challenge the report of Dr. Richard W. Pollay even though the court had already found his report and proposed testimony admissible. He is currently Professor Emeritus of Marketing at the Sauder School of Business, University of British Columbia, where he is also Curator of the History of Advertising Archives. He has an MBA in Marketing and a Ph.D. in Consumer Behavior, both from the University of Chicago. He has published research extensively for over 35 years in the areas of advertising and its effects, consumer attitudes toward advertising and advertising history. He has taught courses at the undergraduate, MBA and Ph.D. levels concerning advertising and its practical management and related research methodologies, both in commercial practice and in academic research. He serves on the editorial boards of, and reviews manuscripts for, many academic journals. He lists a huge bibliography relevant to his proposed testimony, including publications on tobacco.
As Curator of the History of Advertising Archives, he is responsible for the Tobacco Industry Promotion Series (TIPS), an extensive collection of materials on cigarette promotion. TIPS includes (a) over 10,000 U.S. cigarette ads and related merchandising materials, (b) related documents obtained in the course of serving as an expert witness in various trials, (c) notes taken from both tobacco and advertising trade sources (e.g., Advertising Age, Advertising & Selling, Marketing and Media Decisions, Printers' Ink, and various United States tobacco journals), (d) compilations of research done by others, and (e) a special interest library on tobacco advertising, including government reports.
For the past 15 years he has been working extensively on cigarette advertising and its history, publishing over 100 research work products as working papers or in peer reviewed journals. In general these concern the promotional tactics employed by the cigarette industry and the psychology of persuasion. Of note are his contributions on the role of advertising to the United States Surgeon General's Reports on youth (1994), minorities (1998), and women (2000). He has also written on the marketing of "light" cigarettes for the National Cancer Institute ("NCI") (2000). In 2001 this included serving as a coauthor of Monograph 13. Other research and reports have explored current practices and historical aspects of various aspects of cigarette marketing such as the targeting of youth, the targeting of racial minorities, the failures of self-regulation, the use of public relations, the marketing of filtered and seemingly safer "low yield" cigarettes, and event sponsorships and promotion.
Dr. Pollay's report reads in part as follows:
THE HISTORY OF CIGARETTE AVERTISING AND MARKETING
Defendants contend that Dr. Pollay should not be permitted to opine about the intent of defendants based on their advertising. As an expert in marketing he is qualified to infer from the nature, timing, and intensity of an advertising campaign what the intention of the advertisers was. While this court believed on early admissions that the meaning of internal documents of defendants could not be the basis for his opinion, it now concludes that such documents, if they are the normal kinds of documents used in deciding upon an advertising campaign, may be used by the witness to support his opinions as to the nature and intention of the advertising.
Since, as Dr. Pollay concludes, skillful advertisers design their campaign to communicate ideas and feelings to the public they seek to influence, Dr. Pollay can use his expertise to infer from the content of the advertisements how the typical smoker
Defendants' experts and their analysis take a position contrary to Dr. Pollay. The jury is in a position to decide. Richard W. Pollay's opinion and proposed testimony meet the requirements of Rules 702 and 703 of the Federal Rules of Evidence.
n. Robert N. Proctor
Dr. Robert N. Proctor provided a report dated February 28, 2005 and another dated December 18, 2005, elaborating on the earlier report. He is a Professor of the History of Science at Stanford University, and a tenured member of the History Department at that university. He holds a doctoral degree in the History of Science from Harvard University and is the author of four books on the history of science and dozens of articles in peer-reviewed academic journals, including journals of history, science, medicine, and public health. He has won several prizes for scholarship, including the Arthur Viseltear Prize from the American Public Health Association and the General Anthropology Award from the American Anthropological Association. He has held fellowships or grants from the Simon Guggenheim Memorial Foundation, the National Science Foundation, the National Institutes of Health, the Holocaust Memorial Museum, the National Library of Medicine, the Max Planck-Institute for the History of Science in Berlin, the Howard Foundation, the Hamburg Institute for Social Research in Germany, the National Center for Human Genome Research, the National Endowment for the Humanities, the Center for Advanced Study in the Behavioral Sciences at Stanford, the American Council of Learned Societies, the Andrew Mellon Foundation, the Woodrow Wilson Foundation (as Charlotte W. Newcome Fellow), and the Shelby Cullom Davis Center for Historical Studies at Princeton University.
He was asked by plaintiffs' attorneys to comment on the following three questions:
In his report Dr. Proctor states:
A. Preliminary Note on Consensus Formation
Lights Are No Safer: A Scientific Consensus Emerges in 2001
Prior to this Time, the Industry Knew Lights Were No Safer
Smokers, However, Were Led to Believe Lights Were Safer
End Remarks
Defendants object to this testimony on relevancy, hearsay, and Rule 702 grounds. Dr. Proctor's conclusions that defendants committed fraud are best left to the jury. So, too, are his conclusions about defendants' alleged untruths. He may give his opinion based upon the documents showing what was known to defendants and consumers since this kind of conclusion appears to be normal for science historians who deal with developing knowledge. His testimony is useful as historical background to show the development of a scientific consensus and its gradual infusion into the general knowledge base of scientists and laypersons. This historical overview will be helpful to the jury in organizing in its mind a huge flow of documentary and other evidence over many years. It will also be helpful in understanding how scientific hypotheses are tested and verified. Particularly in light of the statute of limitations problem, what was becoming known when and to whom is important for the jury's understanding of the case.
Robert N. Proctor's testimony based on his report satisfies Rules 702 and 703 of the Federal Rules of Evidence.
o. Paul Slovic
Dr. Paul Slovic received a Bachelors Degree in Psychology from Stanford University in 1959, a Masters Degree in Psychology from the University of Michigan in 1942, and a Ph.D. in Psychology from the University of Michigan in 1964. In 1964 he become a research associate at the Oregon Research Institute. In 1976, two colleagues and he established Decision Research, a nonprofit research institute in Eugene, Oregon specializing in the study of human judgment, decision making, and risk assessment. The research conducted at the Institute is both theoretical and applied and is sponsored by United States government agencies such as the National Science Foundation, the National Cancer Institute, the National Institute of Aging, the Environmental Protection Agency, the Department of Energy, and the Forest Service, and by private foundations. In 1986, he became the President of Decision Research and became Professor of Psychology at the University of Oregon. He has served in these positions since that time. He has received many professional honors. He has been researching the psychology of judgment, decision making, and risk for more than forty years. He was one of the first social scientists to study people's perceptions of risk and he has written numerous articles and books based on his research in this area. He has conducted research on risk perception associated with smoking since about 1990. This research has examined the degree to which young people and adults understand the risks associated with smoking. He is one of the most highly cited authors in the social sciences. For example, his article, "The Perception of Risk" (Science, 1987), has been cited in almost 1,000 journal articles. Although he is a psychologist, his research on risk perception and decision making is often cited by economists.
His opinion reads in part as follows:
Basis for Opinion: Theory and Research
Table I.Two modes of thinking: Comparison of the experiential and analytic systems. -------------------------------------------------------------------------------------------------------------- Experiential system Analytic system -------------------------------------------------------------------------------------------------------------- • Holistic • Logical: reason oriented (what is sensible) • Affective: pleasure-pain oriented • Logical connections • Associationistic connections • Behavior mediated by conscious appraisal of events • Behavior mediated by feelings developed • Encodes reality in abstract symbols, words and through past experience numbers • Encodes reality in concrete images, metaphors • Slower processing: oriented towards delayed and narratives action • More rapid processing: oriented towards • Requires justification via logic and evidence immediate action • Self-evidently valid: "experiencing is believing"
Professor David W. Stewart, one of defendants' highly qualified experts who will be permitted to testify, has criticized the work of Dr. Slovic, as well as of plaintiffs' experts Joel Cohen, Richard Pollay, and Michael Cummings. His critique is cogent as to details of the research done by these experts, their methodology, and their conclusions. He particularly supports defendants' view that all smokers differ, making it futile to attempt to draw a general conclusion as to all of them. This approach can be presented to the jury. It does not provide a basis for excluding the contrary conclusions of the distinguished experts on the other side. See, e.g., "Comments on the Affidavit of David W. Stewart," in Expert Report of Paul Slovic dated August 15, 2005, at ¶¶ 36 ff.
The report and proposed testimony of Paul Slovic are admissible under Rules 702 and 703 of the Federal Rules of Evidence.
p. Joseph E. Stiglitz
Plaintiffs propose to introduce the testimony of Dr. Joseph E. Stiglitz supported by his revised opinion of March 28, 2005. Dr. Stiglitz is a Professor at Columbia University's Business School, Columbia's Graduate School of Arts and Sciences (in the Department of Economics), and Columbia's School of International and Public Affairs. In 2001, he was awarded the Nobel Prize in Economic Sciences. He previously served as the World Bank's Chief Economist and Senior Vice President for Development Economics. Before joining the Bank, he was the Chairman of the President's Council of Economic Advisers. He has also served as a professor of economics at Stanford, Princeton, Yale, and All Souls College, Oxford.
As an academic, he helped create a new branch of economics—"The Economics of Information"—which has received widespread application. In the late 1970s and early 1980s, he helped revive interest in the economics of technical change and other factors that contribute to long-run increases in productivity and living standards. He is also a leading scholar of competition policy. He has received many professional awards. He has published widely in fields relevant to his proposed testimony in the present case.
Dr. Stiglitz's report reads in part as follows:
The analysis and conclusions of Dr. Stiglitz are appropriate to his expertise and will be helpful to the jury. In testifying and use of the report, however, references to conclusory and derogatory words such as "monopoly," "oligopoly," "collusion," and the like shall be omitted. These are terms likely to be viewed by the jury as pejorative. They are excluded pursuant to Rule 403 of the Federal Rules of Evidence. Their exclusion should not inhibit the witness in describing in lay terms the alleged "collusion," which is a central part of the plaintiffs' case.
The testimony of Joseph E. Stiglitz and his report comply with Rules 702 and 703 of the Federal Rules of Evidence.
2. Challenges to Defendants' Experts
The challenged defendants' experts have all taken a defensive role that is harder to attack on Daubert-Rule 702 grounds. All are highly qualified in their fields. The fact that some of them work or worked for defendant is irrelevant for purposes of admissibility, though it may be emphasized by plaintiffs on credibility grounds. Their testimony is grounded on scientific methods even though other segments of the scientific community differed with them. They need not have themselves conducted experiments, nor need they have been subject to peer review in publications. Any other rule might exclude the most knowledgeable scientists—as in the case of pharmaceuticals—who labor behind the scenes in company laboratories to produce scientific achievements that will be the basis for important patents and marketing decisions.
a. Michael Dixon
Dr. Michael Dixon was appointed Senior Scientific Advisor to British American Tobacco (Investments) Limited ("BATCo") in London, England in March 2000. Formerly, he managed a group dealing with sensory and behavioral research relating to cigarettes and cigarette smoking at the BATCo Research and Development Centre in Southampton, England. He graduated from Loughborough University of Technology in 1972 and obtained a B.Sc. degree in Human Biology. The main elements of his course were human physiology and anatomy, biochemistry, and experimental design. In 1975, he received a Ph.D. in respiratory physiology following the completion and submission of his thesis, "The Effects of the Inhalation of Irritant Gases on the Reflex Control of Breathing in the Rabbit." After receiving his Ph.D., he did a one-year Post Doctoral Research Fellowship at Nottingham University on aspects
He will testify about in-house scientific inquiries, the influence of smoking on sensory capabilities and other effects on human beings, compensation, efforts of defendants to address tar, and other issues central to plaintiffs' case.
Michael Dixon's proposed testimony and report complies with Rules 701, 702, and 703 of the Rules of Evidence. But see United States v. Philip Morris, Appendix A at 449 F.Supp.2d at 446, supra (finding not credible Dr. Dixon's testimony on compensation).
b. Jeffery Gentry
Dr. Jeffery Gentry is a chemist and an expert in cigarette design who is currently Executive Vice President of Research and Development at R.J. Reynolds Tobacco Company.
He received a B.A. degree in Zoology from the University of North Carolina at Chapel Hill in 1979. After working for 2 years in the private sector, he entered graduate school and received a Ph.D. degree in Analytical Chemistry from North Carolina State University in 1986. From June 1986 until the present, he has been employed by Reynolds in Winston-Salem, North Carolina, at Reynolds' research and development department. He has been involved continuously during the past twenty years in efforts relating to cigarette design, including the design of "lights" cigarettes. Among the many areas in which he has expertise and knowledge are: (1) tobacco growing, curing, and processing; (2) cigarette performance as a result of changes in various cigarette components, such as choice of papers, tobaccos, and filtration; and (3) combustion, pyrolysis and smoke formation mechanisms inside a burning cigarette. He is also familiar with Reynolds' cigarette design efforts prior to his employment.
It is proposed that he testify that Reynolds maintains a state-of-the-art research and development department employing first-rate scientists, engineers, and technical staff and that over many decades, Reynolds has been a scientific leader in efforts to investigate cigarettes and cigarette smoke, to identify and quantify smoke constituents, to reduce or eliminate certain smoke constituents, and to develop and commercialize cigarettes with the potential to reduce the risks of smoking responding proactively to smoking and health allegations. His employer, he will state, consistently monitored the scientific literature and diligently tested theories and claims for addressing the risks of smoking. He will also criticize the conclusions of plaintiffs' expert.
Jeffery Gentry meets the requirements of Rules 701, 702, and 703 of the Rules of Evidence.
c. Jane Y. Lewis
Dr. Lewis is an Analytical Chemist with a B.S. in Chemistry and a Ph.D. in Analytical Chemistry from the University of Cincinnati. Her Ph.D. research thesis was entitled "Quantitative Determination of Pertechnetate by Electrochemical Methods. Electrochemistry of Technetium Radiopharmaceutical Analogs." She was hired as a Chemist by Philip Morris in 1984 in the Analytical Research Division of its Research and Development Department. Her initial assignment was to develop analytical methods for measuring various analytes in tobacco. She was then transferred to the smoke analysis laboratory. There, she oversaw the physical and chemical testing of cigarette smoke. She
She directed a technology research group whose responsibility it was to utilize new technologies and conduct fundamental -research for purposes of selectively reducing constituents in cigarette smoke identified as potentially harmful by public health authorities. Her next position was Vice President of Scientific Technical Services. The role of this department was to provide internal critical scientific information. The department supported new product development, manufacturing, and quality assurance. It also managed ingredient information. In 2004, she was appointed Vice President of Product Assessment. Her department is charged with the chemical and biological assessment of new and existing products. Within the department are divisions that deal with clinical testing (including smoke exposure testing); smoke chemistry analysis (including constituent analysis); product integrity (including mutagenicity and other biological testing); and federal- and state-mandated product testing and reporting.
Her proposed testimony is in the following areas: (1) the general reduction of tar and nicotine through the use of technology over the years, as well as selective reductions and nonconventional cigarettes; (2) the FTC Test Method and its relationship to the tar and nicotine deliveries of Philip Morris's cigarettes; (3) internal research on the exposure of smokers to tar and nicotine from cigarettes; (4) the chemical, physical, and biological testing of cigarettes, including "light" cigarettes; and (5) Philip Morris's weight of evidence assessment concerning lower yield cigarettes and disease risk.
Jane E. Lewis's proposed testimony and report comply with Rules 701, 702, and 703 of the Rules of Evidence.
d. Arnold T. Mosberg
Dr. Arnold T. Mosberg was, until retirement in September 2003, employed by R.J. Reynolds Tobacco Company in its Research and Development Department. At the time of retirement, his job title was Vice President of Regulatory Toxicology. He is a Diplomate of the American Board of Toxicology. He is expected to testify both as an expert witness and as a fact witness. His expert opinions and testimony are based upon 22 years of direct experience working as a toxicologist, including 18 years at Reynolds, his education, professional training in toxicology, personal interactions with other scientists, as well as knowledge of the external and internal scientific information and literature generally relied upon by experts in the fields of toxicology, the toxicology of cigarette smoke, and cigarette product evaluation and testing.
He has a B.S. in Aeronautical and Astronautical Engineering and M.S. and Ph.D. degrees in Biomedical Engineering. He was employed at Battelle Columbus Laboratories from 1977 to 1985. There he was Associate Section Manager in the Toxicology and Health Sciences department and managed the Battelle Columbus Laboratories' Inhalation Toxicology Facility. In 1985, he became Reynolds Senior Staff Toxicologist in the Research and Development Department. He was involved extensively in product evaluation, and biological and toxicological testing of cigarettes and cigarette smoke, including testing of commercial cigarettes. For ten years, he
His expert testimony will include the subjects of the toxicology of cigarette smoke; comparative biological testing of cigarettes, including cigarette designs with the potential to reduce the risks of smoking; product stewardship; cigarette ingredients; and the development of biological assays for cigarette product evaluation and testing. It is expected that he will testify that Reynolds employed many scientists with advanced degrees in a variety of disciplines, including chemistry, physics, biology, toxicology, pharmacology, and biochemistry; that it maintained a state-of-the-art research and development department employing first-rate scientists, engineers, and technical staff; and that over many decades, it has been a scientific leader in efforts to investigate cigarettes and cigarette smoke, to evaluate the biological effects of different cigarette types, including cigarettes with the potential to reduce the risks of smoking, and to develop new biological test methods for the evaluation of cigarettes. He will describe the work of Reynolds' scientists and researchers and the degree to which they advanced the state of scientific knowledge in such areas as cigarette design and manufacture, comparative biological testing of cigarettes, and the biological and toxicological effects of cigarette smoke and "tar."
Arnold T. Mosberg's proposed testimony and report comply with Rules 701, 702, and 703 uf the Rules of Evidence.
e. Kenneth R. Podraza
Kenneth R. Podraza, Ph.D. is the Vice President of Research, Development & Engineering, Administration, and Compliance at Philip Morris. He received his Bachelor of Science degree in Chemistry from the University of Nebraska-Lincoln in 1980, and his Ph.D. in Chemistry from Virginia Commonwealth University in 1988. He obtained additional training in toxicology and pharmacology, taking courses on Liver Toxicology (Society of Toxicology, 2001); Food Allergy and Intolerance (Society of Toxicology, 2001); The Mid-America Toxicology Course (Kansas City, Kansas 2001); Integrating Toxicologic Pathology into Compound Evaluation and Risk Assessment (Society of Toxicology, 2002); Basic Principles and Protocols in Molecular Toxicology (Society of Toxicology, 2002); Basic Pharmacology (University of Wisconsin, 2002); Fundamentals of Risk Assessment and Application of Recent Methodologies to Difficult Problems (Society of Toxicology, 2003); Genomic and Proteomic Array Formats on the Cutting Edge (Society of Toxicology, 2003); Probabilistic Risk Analysis; Assessment, Management, and Communication (Harvard School of Public Health, 2003); and Functional Flow Cytometry: Applications in Toxicology (Society of Toxicology, 2004). He has many publications and patents.
Prior to working in the cigarette industry, he was a chemist at E.I. DuPont de Nemours, where he conducted developmental studies on automotive enamels and synthesized compounds for use as curing agents. He joined Philip Morris in 1980 and has held numerous technical positions, leading to his promotion to Senior Research Scientist, Program Leader. He has worked on research programs and projects dealing with organic and inorganic compounds potentially useful for improved or modified cigarette design. In 1997, he was named manager of Philip Morris's Product Testing Laboratory, managing approximately 100 people responsible for providing technical guidance and data in the areas of cigarette smoke collection and analysis and physical properties measurements
He is expected to offer expert testimony on issues that include the following areas: - (1) the FTC Test Method and its relationship to the tar and nicotine deliveries of cigarettes; (2) cigarette design, including general reduction, selective reduction, and nonconventional cigarettes; (3) Philip Morris's use and testing of ingredients used in cigarette manufacture; (4) its use of ammonia compounds and their alleged effects on nicotine; (5) its studies of compensation and exposure; (6) smoke constituent analyses and biological activity testing of cigarettes; and (7) assessment of lower FTC yield cigarettes and the risk of certain smoking related diseases.
Kenneth R. Podraza's proposed testimony and report comply with Rules 701, 702, and 703 of the Rules of Evidence.
f. Graham A. Read
Graham Albert Read has been employed by British American Tobacco (BATCo) since 1976, performing, managing, and organizing the research function of BATCo. He graduated from Hull University in 1971 with a Bachelor of Science degree in Biochemistry and then took up a University Demonstratorship at Leeds University for a period of four years, with teaching and research responsibilities in biochemistry and medical laboratory sciences. At BATCo, he worked initially as a bench scientist in the Inhalation Toxicology Division of the Life Sciences Department to develop a number of test methodologies for toxicological assays for product assessment purposes. Thereafter, he became head of the Animal Inhalation Toxicology Division and subsequently was assigned responsibility for the biochemistry and hematology function. From 1980 to 1985, he was head of the Human Smoking Behavior Group. From 1988 to 1991, he was first Business Development Manager and then General Manager of Advanced Technologies, Cambridge. In his current position, he is responsible for the development and coordination of BATCo's prospective longterm research programs and providing scientific guidance to senior executives in the area of reduced harm products.
He is expected to testify both as a fact witness and as an expert in the toxicology of tobacco smoke, including biological research on smoke and smoke condensate, with related expertise in human behavior, the pharmacological role of nicotine in smoking, and cigarette design, with particular reference to the development of potentially reduce risk tobacco products, including lower delivery of tar and nicotine products. He will also describe efforts to find ways to modify cigarettes to reduce health risks.
Graham A. Read's proposed testimony and report comply with Rules 701, 702, and 703 of the Rules of Evidence.
g. Edward A. Robinson
Dr. Edward A. Robinson is the Manager of Chemistry for Lorillard Tobacco Company. Prior to joining Lorillard in 1996, he was a Postdoctoral Associate specializing in Organic and Inorganic Photophysics in the Department of Chemistry at the University of Florida. He received his doctorate in Inorganic Chemistry from Georgetown University in 1995.
While Dr. Robinson's testimony on the history of his company and the industry generally since the 1950s seems best left to documentation, he has had access to the files and the memory of other company personnel. His work within the firm puts him in a position to interpret documents and other historical materials in a way helpful to the jury.
Edward A. Robinson will be permitted to testify under Rules 701, 702, and 703 of the Federal Rules of Evidence, subject to particular rulings at trial to reduce hearsay dangers.
h. William Wecker
Dr. Wecker is a statistician and applied mathematician. He received the Bachelor of Science degree (Basic Sciences) from the United States Air Force Academy in 1963. He received both the Master of Science degree (Operations Research, 1970) and Doctor of Philosophy degree (Statistics and Management Science, 1972) from the University of Michigan. He served on the faculties of the University of Chicago, the University of California at Davis, and Stanford University, where he taught statistics and applied mathematics at the graduate level. He has performed research in statistical theory, statistical methods, and applied mathematics for thirty-three years. He is currently President of William E. Wecker Associates, Inc., an applied mathematics consulting firm located in Novato, California. He served as associate editor of the Journal of the American Statistical Association for four years and of the Journal of Business and Economic Statistics for eighteen years. He is widely published.
Dr. Wecker was asked by counsel for defendants to review and comment on the expert reports of Drs. Jeffery Harris and John Beyer. He addresses four main areas in his report:
In the main, he will testify to the lack of appropriate theory, methodology, and technique of plaintiffs' experts, particularly Drs. Jeffrey E. Harris and John C. Beyer. While plaintiffs' experts have attempted to meet some of the prior criticisms of the Harris and Beyer reports, Dr. Wecker will attempt to demonstrate that their conclusions remain scientifically unacceptable. The objection that other experts in the field do not support the defendants' expert is not alone a basis for exclusion. William Wecker is competent in his fields. Credibility is for the jury.
William Wecker meets the requirements of Rules 702 and 703 of the Federal Rules of Evidence.
3. Minor or No Challenges to Plaintiffs' and Defendants' Experts
a. Neal L. Benowitz
Neal L. Benowitz, M.D., an expert for plaintiffs, is a Professor of Medicine, Psychiatry and Biopharmaceutical Sciences at the University of California, San Francis
b. Michael F. Borderding
Michael F. Borderding, Ph.D., is a principal long-time Research Scientist of Reynolds and expert for defendants. He may testify about the variability of smokers' intake of tar and nicotine, and the unsatisfactory nature of the method of estimating tar and nicotine inhaled developed in Massachusetts. He will attack the conclusions of Dr. Jeffrey E. Harris. Michael F. Borderding's proposed testimony complies with Rules 701, 702, and 703 of the Federal Rules of Evidence.
c. Gregory N. Connolly
Gregory N. Connolly D.M.D., M.P.H., is a Professor of Public Health Practice at the Tobacco Control Program of the Massachusetts Department of Public Health. He will testify on testing methods for tar and nicotine and the dynamic nature of human smoking patterns and compensation.
One conclusion of Dr. Connolly will not be permitted at trial. At the end of his report, he concludes that "the tobacco industry purposefully designed its products to create cigarettes which have low tar and nicotine ratings on machine tests but were not shown to reduce actual exposure to toxins or disease risk." Connolly Report at 7. This is an inference that may be drawn from other facts in evidence. Dr. Connolly's report, which is concerned with tar and nicotine yields, may, however, be used by the jury to infer scienter. In all other respects Gregory N. Connolly's proposed testimony complies with Rules 701, 702, and 703 of the Federal Rules of Evidence.
d. Richard Cox
Richard H. Cox, a former Vice President of Philip Morris in charge of research will not be relying on his own report. He has a Ph.D. from the University of Kentucky in Organic Chemistry. By stipulation, he may replace, for testimonial purposes, Drs. Lewis and Podraza. His qualifications are not challenged. For the reasons stated in connection with their reports, supra, he may testify.
e. Wayne S. Desaro
Dr. Wayne S. Desaro, another of defendant's well qualified experts, is in the same position as Dr. Viscusi in his criticism of Dr. Hauser. See infra. He may testify, pursuant to Rules 702 and 703 of the Federal Rules of Evidence. That does not preclude Dr. Hauser's testimony.
f. Peter C. English
Peter C. English, M.D. and Ph.D., is a member of the faculties of both history and medicine at Duke University. He will testify for defendants. He will opine that low tar yield cigarettes reduce the risk of lung cancer, that the FTC testing method was reasonable, and that the public health community was well aware of the compensation problem, but continued to recommend law yield cigarettes for those who did not quit smoking. His testimony complies with Rules 702 and 703 of the Federal Rules of Evidence.
g. Barry E. Goodstadt
Barry E. Goodstadt, Ph.D. in Social Psychology, is a senior research executive with Wirthlin Worldwide, doing research in behavior including the effect of anti-smoking
h. Stephen Hecht
Stephen Hecht, Ph.D., an organic chemist and expert in tobacco carcinogens, is the Wallin Professor of Cancer Prevention at the Cancer Center and Department of Laboratory Medicine and Pathology, University of Minnesota. He will testify that there is no decreased risk of lung cancer in smokers of light and ultralight cigarettes. His proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence.
i. Lucy L. Henke
Lucy L. Henke, Ph.D., is Associate Professor in the Department of Marketing and Legal Studies at the University of Louisiana. She will testify on behalf of defendants that the work of plaintiffs' expert Katherine Kinsella is flawed. Lucy L. Henke's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence.
j. Jack E. Henningfield
Jack E. Henningfield, Ph.D., is Adjunct Professor of Behavioral Biology at The Johns Hopkins University School of Medicine in Baltimore, Maryland, and Vice President for Research and Health Policy at Pinney Associates, a consulting firm on treatment for medical problems, including tobacco dependence. He is an expert for plaintiffs, "of the opinion that the tobacco industry purposefully designed its products to create and sustain nicotine addiction in cigarette smokers and specifically designed so-called `light' cigarettes in a manner to deliver equivalent tar and nicotine to smokers of their regular extension counterparts while giving the appearance of being a `safer' cigarette." Conclusion of Report dated February 27, 2005, unpaginated. He will not be permitted to testify to the intention of defendants, but he may testify that "lights" would sustain addiction and deliver tar and nicotine equivalent to traditional cigarettes, while appearing to be safer. The jury is in a position to infer intent from the documents and other testimony, including his. Jack E. Henningfield's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence.
k. Jacob Jacoby
Jacob Jacoby, Ph.D. in Psychology, is Merchants Council Professor of Consumer Behavior and Retail Management at the Leonard N. Stem School of Business at New York University. He plans to testify for defendants that an R.J. Reynolds survey proffered by defendants is appropriate and demonstrates that factors other than safety—especially taste—determine why smokers choose "lights" or "ultralights." Jacob Jacoby's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence.
1. James A. Langenfeld
James A. Langenfeld, Ph.D., is a Director of LEGG, an economics consulting firm, and adjunct Professor at Loyola University College School of Law. He proposes to testify for defendants that:
James A. Langenfeld's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence. Drs. Stiglitz and Proctor may give opinions contrary to those of Dr. Langenfeld.
m. Nancy A. Mathiowetz
Nancy A. Mathiowetz, Ph.D., is a Professor at the University of Wisconsin in the Department of Sociology and Urban Studies and has been an Associate Professor at the University of Michigan and University of Maryland. She is expected to testify for defendants with respect to the inadequacy of the surveys conducted by Knowledge Networks and relied upon by plaintiffs' expert Dr. Jeffrey Harris. She will also evaluate the work of plaintiffs' expert Dr. K. Michael Cummings.
Nancy A. Mathiowetz's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence.
n. Kenneth A. Mundt
Kenneth A. Mundt, Ph.D. is by training and experience an epidemiologist. He was president and founder of Applied Epidemiology, Inc., based in Amherst, Massachusetts, until November, 2003, at which time the company merged with ENVIRON International Corporation, where he is Principal, and Director of Epidemiology. He was trained as an epidemiologist at the Master's level at the School of Public Health, University of Massachusetts, and at the doctoral level at the School of Public Health, University of North Carolina. For ten years he served on the faculty of the Department of Biostatistics and Epidemiology of the School of Public Health, University of Massachusetts, and at the doctoral level at the School of Public Health, University of North Carolina. He serves as Adjunct Associate Professor in the Department of Epidemiology, University of North Carolina at Chapel Hill and as an Adjunct Associate Professor at Georgetown University.
His opinion for defendants is summarized as follows:
Kenneth A. Mundt is qualified to testify under Rules 702 and 703 of the Federal Rules of Evidence.
o. Kevin M. Murphy
Kevin M. Murphy, Ph.D., is George J. Stigler Distinguished Service Professor of Economics in the Graduate School of Business and Department of Economics at the University of Chicago. As an expert retained by defendants, he will criticize the work of Drs. John Beyer and Jeffrey Harris. Kevin M. Murphy's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence.
p. Bruce Neidle
Bruce Neidle, Director of Business Analysis at Philip Morris will testify to influences on pricing of cigarettes. His testimony complies with Rules 701, 702, and 703 of the Federal Rules of Evidence.
q. Bruce M. Owen
Bruce M. Owen, Ph.D., is the Morris M. Doyle Centennial Professor of Public Policy in the School of Humanities and Sciences and Gordon Cain Senior Fellow in the Stanford Institute for Economic Policy Research at Stanford University. He was Chief Economist of the Antitrust Division of the United States Department of Justice. As a defense witness, he is critical of the work of Drs. John C. Beyer and Jeffrey E. Harris for plaintiffs. His main conclusions are:
Bruce M. Owen's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence.
Stanley Presser, Ph.D., is a professor of sociology at the University of Maryland with more than 25 years of experience as a survey methodologist. He has been president of the main professional association for survey researchers and editor of the leading scholarly journal in the field. His report is offered in rebuttal to the report of defendants' expert David W. Stewart. He offers several criticisms of the surveys relied upon by Mr. Stewart that conclude that not all smokers of "light" cigarettes chose to smoke such cigarettes because of health concerns.
Stanley Presser's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence. See also Price, Appendix C at 52, 93-94, infra (finding Dr. Presser qualified and credible).
s. Michael Schaller
Michael Schaller, Ph.D., is Regents Professor of History at the University of Arizona. As an expert for defendants it is expected that his testimony will be:
Michael Shaller's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence.
t. George Seiden
George Seiden, Ph.D., M.D., is certified in Psychiatry and Forensic Psychiatry and has been Chief of Staff in a number of hospitals, where he worked in smoking cessation programs. He will testify for defendants that the myriad of factors affecting initiation or continuance of smoking point to the need for an individual assessment of each smoker to determine whether a particular smoker is nicotine-dependent, and, if so, when they became so, whether
George Seiden's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence.
u. Peter G. Shields
Peter G. Shields, M.D., is a professor in the Department of Oncology and Medicine and Chief of the Division of Cancer Genetics and Epidemiology at the Georgetown School of Medicine.
Peter G. Shield's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence. See also Price, Appendix C at ¶ 78, infra.
v. David W. Stewart
David W. Stewart, Ph.D., is Robert E. Brooker Professor of Marketing in the Gordon S. Marshall School of Business at the University of Southern California. He has been a member of the faculty of the University of Southern California School of Business since June of 1986 and have served as Chairman of the Marketing Department and Deputy Dean in the Marshall School. Prior to joining the faculty at the at the University of Southern California, he was Associate Dean and Associate Professor of Marketing in the Owen Graduate School of Management at Vanderbilt University. He also served as a research manager for a major advertising agency and has consulted for a variety of organizations on matters related to marketing, marketing research, marketing communications, marketing strategy, and consumer behavior.
As a defense expert he is prepared to demonstrate the unreliability of plaintiffs' experts Joel B. Cohen, Marvin E. Goldberg, John Hauser, Stanley Presser, and Paul Slovic. David W. Stewart is qualified under Rules 702 and 703 of the Federal Rules of Evidence. His testimony does not disqualify any of plaintiffs' experts.
Charles R. Taylor, Ph.D. is the John A. Murphy Professor of Marketing at Villanova University and Senior Research Fellow at the Center for Marketing and Public Policy Research. He received his Ph.D. in Marketing from Michigan State University, with minors in advertising and communications. He is the immediate Past-President of the American Academy of Advertising. Since 1992, his primary research interests have included advertising effects and advertising regulation. In the course of teaching and research, he studied the Federal Trade Commission's regulation of advertising extensively.
As an expert for defendants, he will testify to the inadequacies of work for this case by plaintiffs' experts Joel B. Cohen, Marvin E. Goldberg, Stanley Presser, and Paul Slovic.
Charles R. Taylor is qualified to testify under Rules 702 and 703 of the Federal Rules of Evidence. His testimony does not provide the basis for a disqualification of any of plaintiffs' experts.
x. Michael Thun
Michael Thun, M.D., is a physician and epidemiologist who serves as the vice president for Epidemiology and Surveillance Research at the American Cancer Society. The department he oversees conducts statistical research on cancer prevention, including several cohort studies conducted since the 1950s, the results of which have been published in over one hundred scientific publications. He has appeared in a number of tobacco litigations.
He opines that 1) changes in cigarette design over the past fifty years, such as those reflected in "light" cigarettes, have not resulted in any meaningful reduction in the disease risks associated with smoking; 2) earlier epidemiological studies comparing filtered to unfiltered cigarettes do not support implicit or explicit statements that "light" cigarettes are less hazardous than regular cigarettes; and 3) research subsequent to Monograph 13 further shows that "light" cigarettes are no less hazardous than regular cigarettes with respect to lung cancer.
These opinions are relevant and appear to be reliable. They tend to show that "light" cigarettes did not provide a health benefit to those who smoked them instead of regular cigarettes—a necessary part of plaintiffs' claim that they were promised, and did not receive, reduced risk.
Michael Thun's proposed testimony complies with Rules 702 and 703 of the Federal Rules of Evidence. See also Price, Appendix C at ¶¶ 67-69, infra.
y. Peter A. Valberg
Peter A. Valberg, Ph.D., an expert for defendants, is a public health professional specializing in health risk assessment, human toxicology (including inhalation toxicology), epidemiology, and biological modeling of human exposure to environmental chemicals, airborne gases, and airborne particles. He was a faculty member for 23 years in the Department of Environmental Health at the Harvard School of Public Health in Boston, Massachusetts. Currently, he is a Principal and Senior Health Scientist at Gradient Corporation, an environmental-health consulting firm with offices in Cambridge, Massachusetts and Seattle, Washington. He received a Ph.D. degree in physics in 1970 and an M.S. degree in human physiology in 1975 from Harvard University with postdoctoral training in Biomedical Physics and Biomaterials Science, Alveolar Macrophage Function, Pulmonary Pathology, Analytical and Quantitative Light Microscopy, and Advanced Quantitative Risk Assessment.
Among his conclusions are the following:
Peter V. Valberg's proposed testimony and report comply with Rules 702 and 703 of the Federal Rules of Civil Procedure.
z. W. Kip Viscusi
W. Kip Viscusi is the University Distinguished Professor of Law, Economic and Management at Vanderbilt University. His extensive qualifications have been previously reviewed by the court in this and other cases. He is obviously well qualified as an expert for the defendants. He has detailed objections to Dr. John Hauser's original report and affidavit of July 2006, which attempted to answer some of Dr. Viscusi's earlier objections. The objections and opinions of W. Kip Viscusi are admissible under Rules 702 and 703 of the Federal Rule of Civil Procedure. So, however, are those of Dr. Hauser. Credibility issues are for the jury.
aa. Errol Zeiger
Dr. Errol Zeiger performed and directed genetic toxicology (i.e., chemical mutagenicity) research at the Federal Drug Administration (FDA) for 7 years and then for 24 years at the National Institute of Environmental Health Sciences (NIEHS) of the National Institutes of Health (NIH). He retired from the government in December 2000 to work as a consultant in Chapel Hill, North Carolina. He has M.S. and Ph.D. degrees in microbiology from George Washington University in Washington, D.C., and a J.D. from North Carolina Central University School of Law. While he is a member of the North Carolina State Bar, he has never practiced law. He has more than 30 years experience in biology and toxicology as a laboratory researcher, project director, and scientific program manager.
His conclusions are summarized as follows:
Errol Zeiger's proposed testimony and report comply with Rules 702 and 703 of the Federal Rules of Evidence.
Plaintiffs move to exclude all testimony by experts for defendants that "light" cigarettes are safer than regular cigarettes. In this connection they would exclude the testimony of Dr. Kenneth A. Mundt, an epidemiologist, and of two statisticians, Dr. Lawrence S. Mayer and Dr. William E. Wecker. They would also exclude defendants' proposed chemistry experts Dr. Jane Y. Lewis, Dr. Kenneth F. Podraza, Dr. Jeffery Gentry and Dr. Edward A. Robinson; and toxicologists Dr. Andrew T. Mosberg and Dr. Carr J. Smith.
The evidence on the safety of "light" cigarettes, with less tar, in general, than regular cigarettes is central to the issue of fraud in this case. Such evidence cannot be excluded without so distorting the trial as to make it administratively bizarre. Insofar as the plaintiffs are challenging the probative force of defendants' experts, they raise a Daubert issue. That issue is separately addressed passim, supra.
The motion is denied.
Defendants move to exclude expert testimony that the marketing of "light" cigarettes has affected smoking initiation rates (by inducing nonsmokers to being smoking) or quit rates (by inducing smokers to continue smoking in lieu of quitting). They contend that plaintiffs' experts lack any scientific support for the conclusion that the marketing of "light" cigarettes has affected the prevalence of smoking. The motion is denied.
As already pointed out, expert evidence must be both relevant and reliable. See Parts VIII.D, VIII.E, supra. "Pertinent evidence based on scientifically valid principles will satisfy those demands." Campbell ex rel. Campbell v. Metropolitan Property and Cas. Ins. Co., 239 F.3d 179, 184-85 (2d Cir.2001).
Two of plaintiffs' experts, Drs. David Burns and Michael Thun, opine that smoking "light" cigarettes may increase the overall smoking prevalence rate by decreasing quit rate or increasing initiation rate. See Expert Report of David Burns, ¶ 71 ("Many smokers switch to lower yield cigarettes as part of an effort to quit or substantially reduce their smoking, but existing evidence suggests that they are not more likely to quit successfully than those who do not switch."); Expert Report of Michael Thun, 12 (raising the possibility that "smokers who have switched to a `lower yield' product because of the implication that this will reduce their risk might otherwise have quit[ ]"). See also Thun Report 115(d) (citing article authored by Burns and Thun, discussed infra).
I. Relevance
The opinions of Drs. Burns and Thun are relevant. It is part of plaintiffs' theory that the fraudulent marketing of "light" cigarettes as more healthful encouraged existing smokers to switch to "light" cigarettes instead of quitting and induced new smokers to start smoking. See SAC ¶ 74(b) ("Defendants concealed the true nature of light cigarettes in order to attract new smokers and prevent current smokers from quitting, thereby preserving the cigarette market and maximizing their profits[.]"). Evidence that these marketing efforts were successful is pertinent to a finding of injury and determination of damages. See Parts III.B, III.D, supra.
2. Reliability
The opinions are reliable and based on sufficient data. As discussed in Parts
A 1998 study published in the American Journal of Preventive Medicine found that "light" smokers were overwhelmingly ignorant of the possibility that smoking a "light" cigarette could expose them to the " same amount of tar and nicotine as smoking a regular cigarette (10 percent of a national sample). See Kozlowski, L.T., et al., Smokers' misperceptions of light and ultra-light cigarettes may keep them smoking, Am. J. Prey. Med.1998; 15(1):9-16 (quoted in Pls.' Resp. to Defs.' Mot. on Expert Marketing Evid., Docket No. 696, at 9). Forty percent of the "light" smokers in the sample indicated that they chose "light" cigarettes "to reduce the risks of smoking without having to give up smoking." Id. (quoted in Monograph 13, at 195). Movement towards quitting, reduced risk, and reduced tar and nicotine were all common reasons these smokers gave when asked why they chose "light" cigarettes—though "taste" was the most common. Id. Similar results were obtained in a contemporaneous state survey and another 1999 survey. Id. (citing Kozlowski, et al., Smokers' misperceptions, supra, and Kozlowski, et al., Smoker reactions to a "radio message" that Light cigarettes are as dangerous as regular cigarettes, Nicotine and Tobacco Control, 1999; 1:67-76).
Peer-reviewed surveys in 1995 and 1996 demonstrated that smokers of "light" cigarettes are more likely to acknowledge the risks of smoking and more likely to report that their health had been affected by smoking and that their doctor had advised them to quit. See Monograph 13 at 195 (citing Giovino, et al., Attitudes, knowledge, and beliefs about low-yield cigarettes among adolescents and adults, Monograph 7, National Cancer Institute (1996), and Health Canada, Survey on Smoking in Canada (1995)). The Giovino study also found that 38 percent of "light" smokers saw switching to "light" cigarettes as a step towards quitting, but that they were actually less likely to succeed in quitting. Id.
Summarizing this and other studies, one of the authors of Monograph 13 stated:
Monograph 13 at 197. See also Tindle, et al., Cessation Among Smokers Who Used "Light" Cigarettes: Results From the 2000 National Health Interview Survey, Am. J. Pub. Health, 96(8): 1498-1504 (2006) (analysis of over 32,000 responses to United States National Health Interview Survey revealed that smokers who used "light" cigarettes were 54 percent less likely to quit than smokers who only smoked regular cigarettes). No data supports the contrary position that switching to "light" cigarettes increases the likelihood of quitting. Monograph 13 at 196. Monograph 13 is one of the bases of opinion identified by Dr. Thun. Dr. Burns edited the monograph. It is deemed incorporated into their opinions by reference.
Defendants' contention that, in depositions for this case and in a joint article published in 2001, the experts have disavowed the existence of any reliable evidence of a link between "light" cigarettes and smoking prevalence fails.
Drs. Burns and Thun's reasonable concessions are consistent with the elemental principle of the scientific method that hypotheses can only be disproved, never definitively proved. Expert evidence need not establish a hypothesis to a scientific certainty before an expert may offer his opinion based upon it. Were that the case, no expert would ever be permitted to testify.
What Daubert and the Federal Rules of Evidence demand is a "witness qualified as an expert by knowledge, skill, experience, training, or education," offering testimony that is "based upon sufficient facts or data, . . . [that] is the product of reliable principles and methods, . . . [that have been] applied . . . reliably to the facts of the case." Fed.R.Evid. 702. Drs. Burns and Thun are qualified to offer opinions in the field. See Parts VIII.F.1.b, VIII.F.3.x, supra (finding their reports admissible). Their opinions are based upon sufficient data generated by reliable survey methods reliably applied in this instance.
As plaintiffs' experts properly concede, the cited studies do not definitively resolve the question of the link between promotion of "light" cigarettes by defendants and smoking rates. The data they contain do, however, provide a reasonable basis for the experts' inference that there is such a connection. The experts' testimony will "assist the trier of fact" by showing the jury one inference—though not the only one—it could draw from those studies. The jury need not accept the experts' opinions and will be so instructed.
Defendants also challenge plaintiffs' reliance on defendants' internal documents, which suggest that defendants were aware that "light" cigarette smokers were potential quitters, and adjusted their marketing to deter them from quitting. These documents state, for example: "[L]ow tar cigarette smokers . . . are potential cigarette quitters. . . . And more of them than the average have tried to quit smoking. Since low tar smokers are an expanding share of the market, their greater desire to quit smoking poses a special problem for the industry." "A Study of Public Attitudes Toward Cigarette Smoking and the Tobacco Industry in 1978," May 1978, Bates 501565967-6019 at 6008 (Pls.' Class Cert. Mem. Ex. 71). And:
Defendants are correct that these documents do not purport to quantify the impact of marketing "light" cigarettes on quit or initiation rates. They are unsuitable for an expert purporting to demonstrate such a statistically determined impact. They would be admissible, however, to demonstrate defendants' beliefs. Using them, in conjunction with actions taken (e.g., advertising expenditures) and results (e.g., smoking rates, dominant position of "light" cigarettes), a jury could properly conclude that the introduction and marketing of "light" cigarettes was intended to, did, and does affect the prevalence of smoking.
Defendants' attempts to leverage some of plaintiffs' expert's ignorance of a particular topic into a "concession" by plaintiffs or "contradiction" among the experts is unavailing. That plaintiffs' experts Blaine Nye, Jeffrey Harris, John Beyer, and Kenneth Cummings were unaware of a study demonstrating that "light" cigarettes affect initiation or quit rates has no bearing on whether the studies are reliable when offered by other plaintiffs' experts.
The motion is denied. Defendants' hearsay objections to the studies proffered by plaintiffs, though dubious, see Fed. R.Evid. 703 ("If of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject, the facts or data need not be admissible in evidence in order for the opinion or inference to be admitted."), may be addressed by motions in limine.
Defendants' motion to exclude expert evidence of mutagenicity is denied for the reasons described in Part V.A, supra (denying partial summary judgment). Plaintiffs' experts do not offer the opinion that "light" cigarettes are, to a scientific certainty, more toxic than regular cigarettes or contain more mutagenic constituents. Rather, they examine defendants' internal documents and conclude that defendants were aware of the possibility that "light" cigarettes were more toxic, and failed to disclose this to their customers, thus fraudulently inflating the demand for their product. The motion is denied.
The Daubert and Rule 702 rulings are subject to modification as the proceedings develop. Further experts will be discouraged but not excluded. More precise decisions on questions which may be asked and opinions given can be expected during the course of the trial.
Defendants have raised several management issues of allegedly legal and constitutional dimension as bars to the prosecution of this litigation as a class action. None of them provides a basis for denial of certification. While complex, the management of the case calls only for garden-variety courtroom procedures and patience.
Plaintiff's use of aggregate proof does not violate defendants' constitutional rights. The appropriateness of such proof has been analyzed in numerous memoranda. See, e.g., Blue Cross, Appendix B at Part VII and D, supra. Experience with several years of discovery in this and related tobacco cases, and two full trials, has strengthened the conclusion that statistical
The idea that, due process and jury trial rights require a particularized traditional form of evidence for each element would make this case and cases like it impossible to try. There is little harm in retaining a requirement for "particularistic" evidence of causation and damages in sporadic individual accidents where there are but a few medical histories and witnesses; such evidence is almost always available and convenient in such litigation. See, e.g., In re Agent Orange Prod. Liab. Litig., 597 F.Supp. 740, 832-34 (E.D.N.Y.1984). Even in such cases use of almost any experts, whether doctors or DNA experts, depends upon the implied or express probabilistic underpinning of their professional judgments.
In mass fraud cases with hundreds of thousands or millions of injured the cost of one-on-one procedures is insuperable and unsuitable for either a jury or a bench trial. The consequence of requiring individual proof from each smoker would be to allow a defendant which has injured millions of people and caused billions of dollars in damages to escape almost all liability. As Professor Rosenberg noted almost a score of years ago, such restrictions in the form of admissible evidence is impractical and unnecessary. "The concept of `particularistic' evidence suggests that there exists a form of proof that can provide direct and actual knowledge of [the parties' conduct]. `Particularistic' evidence, however, is in fact no less probabilistic than is the statistical evidence that courts purport to shun." David Rosenberg, The Causal Connection in Mass Exposure Cases: A "Public Law" Vision of the Tort System, 97 Harv. L.Rev. 851, 870 (1984) (footnotes omitted). Many commentators agree. See, e.g., Peter Tillers, Symposium: Artificial Intelligence and Judicial Proof 22 Cardozo L.Rev. 1365 (2001) (describing tendency of evidence scholars to rely on mathematical and quantitative methods, such as probability theory, statistics, and decision theory); Louis Kaplow & Steven Shavell, Fairness Versus Welfare, 114 Harv. L.Rev. 961, 1203 n. 580 (2001); Laurens Walker & John Monahan, Sampling Liability, 85 Va. L.Rev. 329 (1999) (using statistical evidence is a reliable and practical method for mass trial); Robert G. Bone, Statistical Adjudication: Rights, Justice, and Utility in a World of Process Scarcity, 46 Vand. L.Rev. 561 (1993); Jonathan J. Koehler & Daniel Shaviro, Veridical Verdicts: Increasing Verdict Accuracy Through the Use Of Overtly Probabilistic Evidence and Methods, 75 Cornell L.Rev. 247, 248 (1990) (although courts should carefully determine the validity of probabilistic evidence, "overtly probabilistic evidence is no less probative of legally material facts than other types of evidence"); Michael J. Saks & Robert F. Kidd, Human Information Processing and Adjudication: Trial By Heuristics, 15 L. & Soc'y Rev. 123, 151 (1989-1990) ("Much of the testimony that is commonly thought of as particularistic only seems so.
The Federal Rules of Civil Procedure and the Federal Rules of Evidence grant district judges broad authority to shape the nature, and scope of admissible evidence for trial. Scientific evidence—such as sampling and statistical extrapolations—is well suited to mass tort actions. It is particularly appropriate in massive consumer fraud cases, so long as it passes the gatekeeping criteria described in the Federal Rules of Evidence and Daubert v. Merrell Dow Pharms., 509 U.S. 579, 113 S.Ct. 2786, 125 L.Ed.2d 469 (1993) and related cases. Many states have provided special mechanisms for handling consumer fraud claims in the aggregate, recognizing that many such claims cannot be economically tried individually. When, as in the case at bar, the plaintiffs are a widely spread group complaining of injury from a common course of conduct by defendants, statistical analysis may provide a more accurate and comprehensible form of evidence than would the testimony of millions of individual smokers. See Blue Cross & Blue Shield of N.J., Inc., 133 F.Supp.2d at 172 (explaining propriety of statistical extrapolation for entity suffering damages in aggregate); Blue Cross & Blue Shield of N.J., Inc., 36 F.Supp.2d at 575 (E.D.N.Y. 1999) ("The aggregation of millions of alleged injuries in the instant suit can be expected to yield more accurate results with respect to the causation issue since projections based upon a large statistical base will be available, thus reducing the size of the possible error.").
Resolving mass tort disputes on a case-by-case basis may create a systematic bias against plaintiffs because, "[w]hile defendants spread the risk of adverse judgments across all test trials, each trial decides the fate of each plaintiff party on a single roll of the dice." David Rosenberg, Mass Tort Class Actions: What Defendants Have and Plaintiffs Don't, 37 Harv. J. on Legis. 393, 430 (2000); Marc Galanter, Why the "Haves" Come out Ahead: Speculations on the Limits of Legal Change, 9 L. & Soc'y Rev. 95 (1974) (importance of defendants' roles as repeat players). The defendant who successfully resolves a mass tort dispute with aggregate tools enjoys the economic benefit of a final resolution to all proceedings, not just a single case. Cf. Simon v. Philip Morris Inc., 200 F.R.D. 21, 43-46 (E.D.N.Y.2001) (discussing public policy supporting aggregation).
1. Federal Rules of Civil Procedure and Evidence
Claiming it was necessary for their defense of the suit, defendants sought discovery, in the form of depositions or surveys, from 650 smokers on class certification and over 40,000 smokers in preparation for trial. See Mem. in Support
A trial court has wide discretion to manage pre-trial discovery. See Cruden v. Bank of New York, 957 F.2d 961, 972 (2d Cir.1992). The Federal Rules of Civil Procedure grant a district court judge flexibility to shape the type and scope of information available before and during a complex trial. See Manual For Complex Litigation (Fourth) § 11.422 (2004). The Rules contemplate the trial or magistrate judge's setting time limits and restrictions on the quantity, scope, and the sequencing of discovery. See Fed.R.Civ.P. 1 (Rules to be construed and administered to secure "just, speedy, and inexpensive determination of every action"); Fed.R.Civ.P. 16(b) (limiting the time for, and other aspects of, discovery in pretrial conference); Fed. R.Civ.P. 26(b)(2) (court to limit "frequency or extent of use of discovery methods"); Fed.R.Civ.P. 30(a), 33 (establishing presumptive limits for depositions and interrogatories); cf. B.F. Goodrich v. Betkoski, 99 F.3d 505, 523-24 (2d Cir.1996) (not abuse of discretion to limit discovery in CERCLA case involving numerous parties when extensive discovery would make litigation expense disproportionate to cost of cleaning up landfill).
The Manual For Complex Litigation specifically recommends "limiting discovery that is cumulative, duplicative, more convenient or less burdensome or expensive to obtain from another source, or seeks information the party has had ample opportunity to obtain." Manual For Complex Litigation (Fourth) § 11.421. A balance must be struck between the burden and expense of discovery sought and its potential benefit. Limiting discovery under the Federal Rules confronts litigants with hard choices. Some discovery necessarily must be foregone or structured in complex litigation if massive cases are to be expeditiously resolved. The goal in a federal court should be to decide fairly claims based on the merits, not on informational costs associated with the deposition of millions of witnesses. See Laurens Walker & John Monahan, Sampling Liability, 85 Va. L.Rev. 329, 350 (1999) (promoting methods to overcome high information search costs to reach merits). According to the Manual For Complex Litigation: "In determining appropriate limits, the court will need to balance efficiency and economy against the parties' need to develop an adequate record for summary judgment or trial. This task further underlines the importance of clarifying and understanding the issues in the case before imposing limits." Manual For Complex Litigation (Fourth) § 11.422 (2004). It is particularly important not to deny the courts the ability to take advantage of cost savings through modern scientific techniques for acquiring information. See, e.g., Federal Judicial Center, Reference Manual, supra; Steven Breyer, Introduction; Margaret A. Berger, The Supreme Court's Trilogy on the Admissibility of Expert Testimony; William W. Schwarzer & Joe S. Cecil, Management of Expert Testimony; David H. Kaye & David A. Freedom, Reference Guide On Statistics; Shari Seidman Diamond, Reference Guide on Survey Research.
In the bulk of the third-party tobacco cases that contemplated discovery and trial,
The trial judge's role as a primary protector against excessive transactional costs in litigation extends beyond the discovery phase to trial. She or he has broad powers under the Federal Rules of Evidence to regulate the admission of expensive cumulative evidence. See Fed.R.Evid. 403 (restricting cumulative evidence); Fed. R.Evid. 611(a) ("The court shall exercise reasonable control over the mode and order of interrogating witnesses and presenting evidence."); Fed. R. Evid 1006 (allowing writings, recordings, or photographs which cannot be conveniently examined in court to be presented in the form of "chart[s], summar[ies] or calculation[s]").
Although the manner of presenting evidence is best left to counsel, Rule 611 of the Federal Rules of Evidence entrusts the trial judge with the "ultimate responsibility" for the efficient ascertainment of truth by authorizing the exercise of reasonable control over the presentation of evidence. See Margaret A. Berger, et al., Evidence § 611.02 (2000); Fed.R.Evid. 611(a) advisory committee's note ("The ultimate responsibility for the effective working of the adversary system rests with the judge."); ABA Civil Trial Practice Standard 12(b) (1998) ("Subject to the judge's ultimate responsibility to ensure a fair trial and to afford the parties a fair opportunity to be heard, the court should consider whether to . . . impose reasonable limits on trial presentation. . . ."). The wording of Rule 611 is broad enough to authorize innovations in the presentation of evidence provided the court considers ways to limit prejudice to the parties. Berger, et al., Evidence § 611.02 (citing cases). Reasonable trial court decisions under Rule 611 of the Federal Rules of Evidence do not deny due process—particularly in the civil context. They are only challengeable upon a finding that the abuse of discretion substantially denigrated
2. Appropriateness of Sampling and Survey Techniques
Sampling and survey techniques are well-accepted alternatives for the trial judge facing crippling discovery and evidentiary costs. See Manual for Complex Litigation (Fourth) § 11.422 (when it is necessary to limit discovery, "statistical sampling techniques [may be used] to measure whether the results of the discovery fairly represent what unrestricted discovery would have been expected to produce"), § 11.493 ("The use of acceptable sampling techniques in lieu of discovery and presentation of voluminous data from the entire population, may produce substantial savings in time and expense."). See also Hans Zeisel & David Kaye, Statistics for Social Science and Public Policy, Empirical Methods in Law and Litigation (1997) (use of statistical methods in litigation); citations to Reference Manual on Scientific Evidence in Part IX.A.1, supra. They have been admitted in a large variety of actions to establish key factual contentions. See, e.g., Castaneda v. Partida, 430 U.S. 482, 495-96, 97 S.Ct. 1272, 51 L.Ed.2d 498. 430 U.S. 482, 97 S.Ct. 1272, 51 L.Ed.2d 498 (1977) (statistical data sufficient to establish prima facie case of discrimination in jury selection); In re Estate of Marcos Human Rights Litig., 910 F.Supp. 1460, 1465 (D.Haw.1995) (using sampling to determine compensatory damages by extrapolation), aff'd sub nom Hilao v. Estate of Marcos, 103 F.3d 767 (9th Cir.1996); Ageloff v. Delta Airlines, Inc., 860 F.2d 379, 383-84 (11th Cir.1988) (in wrongful death suit by estate, evidence of decedent's life expectancy, in conjunction with projected earnings, savings, and return on investment rates used to determine damages); G.M. Brod & Co., Inc. v. U.S. Home Corp., 759 F.2d 1526, 1538-40 (11th Cir.1985) (using expert testimony for profit projections based on industry norms); Capaci v. Katz & Besthoff, Inc., 711 F.2d 647, 653-57 (5th Cir.1983) (using census data in gender discrimination case); Exxon Corp. v. Tex. Motor Exch., Inc., 628 F.2d 500 (5th Cir.1980) (using statistical sampling in trademark infringement suit); Stewart v. General Motors Corp., 542 F.2d 445, 449 (7th Cir.1976) (statistical evidence to establish prima facie case of racial discrimination in employment); Zippo Mfg. Co. v. Rogers Imports, 216 F.Supp. 670, 681-82 (S.D.N.Y.1963) (Feinberg, J.) (relying on consumer surveys and sampling methodology to determine whether defendant's product caused public confusion with plaintiff's trademarked product); United States v. 449 Cases Containing Tomato Paste, 212 F.2d 567, 574-75 (2d Cir. 1954) (approving health inspector's testing of samples to determine contamination, rather than requiring the opening of all cases).
The Supreme Court has spoken favorably of the use of sampling and statistical analysis. See United States v. Fior D'Italia, Inc., 536 U.S. 238, 247-48, 122 S.Ct. 2117, 153 L.Ed.2d 280 (2002) (approving Internal Revenue Service use of aggregate estimation to determine unreported tips by restaurant employees).
In some cases sampling techniques may "provide the only practicable means to collect and present relevant data." Manual for Complex Litigation (Fourth) § 11.493 (2004). See also Harolds Stores v. Dillard Dep't Stores, 82 F.3d 1533, 1544 (10th Cir. 1996) (survey admitted as exception to hearsay rule if it is "material, more probative on the issue than other evidence and if it has guarantees of trustworthiness") (internal citation omitted). No special or unique rules of evidence are involved when
Properly developed survey evidence is admissible subject to arguments regarding its weight and probative value. Schering Corp. v. Pfizer, Inc., 189 F.3d 218, 224 (2d Cir.1999) (collecting cases); McNeilab Inc. v. American Home Prods. Corp., 848 F.2d 34, 38 (2d Cir.1988). The question whether such surveys in combination with other evidence is sufficiently probative is to be left to the jury in accordance with the "well-established standards governing judgment as a matter of law," once the court has determined the study is viable under Federal Rule of Evidence 702. In re Joint E. & S. Dist. Asbestos Litig., 52 F.3d 1124, 1133 (2d Cir.1995) (permitting statistical evidence to go to jury). See generally Michael O. Finklestein & Bruce Levin, Statistics for Lawyers vii (2d ed.2001) (wide expansion of statistics used in trials over past decade).
In Toys "R" Us, Inc. v. Canarsie Kiddie Shop, Inc., the court analyzed the factors central to an examination of a survey to determine its reliability. They are whether:
559 F.Supp. 1189, 1205 (E.D.N.Y.1983).
"The Toys R Us criteria are typically used by courts [in bench trials] to analyze the weight to be accorded a survey, not its admissibility under Rule 403." Friesland Brands, B.V. v. Vietnam Nat'l Milk Co., 221 F.Supp.2d 457, 460 n. 1 (S.D.N.Y.2002) (applying Toys R Us). In the jury trial contemplated in this case, they will provide a sound map for direct and cross-examination by counsel to aid jurors in deciding what weight, if any, to give the survey proofs offered by the parties.
Greater reliance on statistical methods is required by the profound evolution in our economic communication and data compilation and retrieval systems in recent decades. See generally Deborah R. Hensler & Mark A. Peterson, Understanding Mass Personal Injury Litigation: A SocioLegal Analysis, 59 Brook. L.Rev. 961 (1993). Manufacturers now mass-produce goods for consumption by tens of millions, creating the potential for mass injury or fraud. Modern adjudicatory tools must be adapted to allow the fair, efficient, effective, and responsive resolution of the claims of these aggrieved masses. See, e.g., In re DES Cases, 789 F.Supp. 548 (E.D.N.Y.1992) (market share liability applied in suits for defective design of diethylstilbestrol (DES)); In re Joint E. & S. Dist. Asbestos Litig., 726 F.Supp. 426 (E.D.N.Y.1989) (computation of damages for Brooklyn Navy Yard asbestos victims); In re Agent Orange Prod. Liab. Litig., 689 F.Supp. 1250 (E.D.N.Y.1988) (distribution scheme for victims of agent orange); see also Manual for Complex Litigation (Fourth) §§ 22.31-.318 (2004) (special issues arising from aggregated claims in mass torts). See generally Howard M. Erichson, Mass Tort Litigation and Inquisitorial Justice, 87 Geo. L.J.1983, 1985 (1999) (describing with approval the increase in court-appointed experts and settlement class actions based on "vigorous inquiries" into the merits of the claims as two "necessary" responses to the challenges
State legislatures, courts, and commentators have recognized that tools for aggregation are especially helpful in the context of consumer fraud, when the relatively low value of specific claims or the litigation advantages of a well-financed defendant can discourage individuals from pressing their claims in court. Particularly incisive is the statement in Group Health Plan, Inc. v. Philip Morris, Inc., 621 N.W.2d 2, 15 (Minn.2001): "[W]e reject the view . . . that our misrepresentation in sales laws require proof of individual reliance in all actions seeking damages. To impose a requirement of proof of individual reliance in the guise of causation would reinstate the strict common law reliance standard that we have concluded the legislature meant to lower for these statutory [consumer fraud] actions." (citations omitted). See also Samuel Issacharoff, Group Litigation of Consumer Claims: Lessons From the U.S. Experience, 34 Tex. Int'l L.J. 135, 142-46 (1999) (limited resources and incentives for consumers acting individually); Laurens Walker & John Monahan, Sampling Liability, 85 Va. L.Rev. 329 (1999).
These tools are necessitated by procedural devices such as the class action, discussed in detail in Part VII, supra, and subrogation statutes permitting a state agency or other institutional actor to pursue on a consolidated basis recovery for harms to many individuals. See, e.g., Fla. Stat. Ann. § 409.910(4) (empowering state health agency to seek recovery from liable third parties of funds owed to Medicaid-eligible citizens); Vt. Stat. Ann. tit. 33, § 1911(f)(5) (2005) (permitting use of statistical analysis to prove causation and damages in state agency action to recover monies expended on "tobacco-related health conditions"); Md.Code Ann., Health Gen. § 15-120(e)(2) (2006) (same). But see Agency for Health Care Admin. v. Associated Indus. of Florida, 678 So.2d 1239 (Fla.1996) (striking statutory provision permitting statistical analysis of subrogated claims of Medicaid recipients on state due process grounds).
3. Due Process
The use of statistical evidence in the instant case violates neither the Constitutional guarantee of due process nor the Constitutional right to a jury trial. "`Due Process,' unlike some legal rules, is not a technical conception with a fixed content unrelated to time, place and circumstances." Cafeteria and Restaurant Workers Union, Local 473 v. McElroy, 367 U.S. 886, 895, 81 S.Ct. 1743, 6 L.Ed.2d 1230 (1961) (internal citation omitted). "The very nature of due process negates any concept of inflexible procedures universally applicable to every imaginable situation." Id. Whether a procedural device utilized where a private party invokes state authority to deprive another person or entity of property comports with due process is determined by a balancing of interests:
Consideration of the private interests at issue counsels in favor of utilizing statistical methods. Tobacco companies admittedly have an interest in not paying for damages in excess of what their alleged misconduct may have caused; that interest would be furthered by their confronting (before a jury) each of the tens of millions of plaintiffs who may have been defrauded about his or her reliance on tobacco company misstatements and omissions (so as to determine whether the RICO reliance requirement was met for that plaintiff), and about his or her discovery of injury (so as to determine when the statute of limitations started to run for that plaintiff).
Practical considerations temper the weight of the tobacco companies' interest. If such an individualized process were undertaken, it would have to continue beyond all lives in being. Assuming tobacco companies were willing to expend the resources and monies necessary both in discovery and at trial to mount such an undertaking, the litigation costs in doing so would far exceed any monies saved by avoiding erroneous payments. Transactional costs would be enormous. Most of these costs would be borne by the public through financing of a court system that would require expansion.
The interest of plaintiffs in avoiding the additional litigation costs that would arise if defendants were permitted to confront each possible plaintiff at trial is weighty. The necessary additional litigation costs to plaintiffs would exceed any recovery possible from defendants, making continued pursuit of the litigation fruitless. See, e.g., Hilao, 103 F.3d at 786 ("[Plaintiffs'] interest in the use of the statistical method . . . is enormous[ ] since adversarial resolution of each class member's claim would pose insurmountable practical hurdles."). The interests of the injured plaintiffs must be considered. Requiring individual proof as to each claim would unnecessarily intrude on the lives of tens of millions of people. Examining each grain of sand is too burdensome in a survey of a beach.
The second element of the due process balancing test—examination of the risk of erroneous deprivation through the procedures under attack and the probable value of additional or alternative safeguards— also supports allowance of the proffered statistical proof, subject to appropriate Daubert challenges. See Part VIII, supra (resolving such challenges). Litigation of the RICO class claims with full debate over the merits of proffered surveys and statistical models—which the parties have begun—may provide greater safeguards to defendants than would the litigation of a single handpicked sympathetic plaintiff's case who seeks punitive damages for the conduct of defendants towards all possible plaintiffs. Cf. International Bhd. of Teamsters, Local 734 v. Philip Morris Inc., 196 F.3d 818, 823 (7th Cir.1999) ("Statistical methods could provide a decent answer [to the question of RICO injury causation]—likely a more accurate answer than is possible when addressing the equivalent causation question in a single person's suit.").
Experts have developed appropriate modeling techniques for reaching statistically significant and reliable conclusions. See Finkelstein & Levin, Statistics for Lawyers §§ 5.3, 13.7 (confidence intervals), §§ 9.1-9.2 (sampling), §§ 13.1-13.9 (regression modeling); Kaye and Freedman, Reference Guide on Statistics, supra, at 331; Rubinfeld, Reference Guide on Multiple Regression, supra, at 415. See generally Geoffrey R. Norman & David L.
In the Blue Cross case, such techniques were employed to ensure that the ultimate damages projected by statistical models were within a reasonable percent, higher or lower, of the actual damage caused by defendants' alleged misconduct. See Blue Cross, 178 F.Supp.2d at 206-09. The jury's evaluation of this data was conservative and helpful to defendants.
In addition to statistical evidence, the parties will be permitted to present to the jury relevant lay testimony, expert testimony, and documentary evidence—and test opposing party proofs by cross-examination and argument—subject to the constraints of the Federal Rules of Evidence and the practical considerations of trial management.
The third due process consideration, regard for any interest the government may have in the proposed procedures, weighs heavily in support of allowing plaintiffs to rely on statistical evidence. A consolidated trial with full presentation of the individual facts of each of plaintiffs' beliefs about the health risks of "light" cigarettes before a single jury would be unmanageable. See Manual for Complex Litigation (Fourth) § 12.3 ("Although presentation of evidence is normally controlled by counsel's strategies and tactics, complex litigation presents other concerns, primarily jury comprehension and the length of the trial. These are not unrelated: A shorter trial promotes jury comprehension, and effective presentation of evidence saves time."); Joe S. Cecil, Valerie P. Hans & Elizabeth C. Wiggins, Citizen Comprehension of Difficult Issues: Lessons from Civil Jury Trials, 40 Am. U.L.Rev. 727, 764 (1991) ("[T]he overall picture of the jury [in complex cases] that emerges from the available data indicates that juries are capable of deciding even very complex cases, especially if procedures to enhance jury competence are used."). Tens of millions of separate trials brought by individuals who were victims of the alleged "lights" cigarette fraud would prove unnecessarily burdensome; it would "clog the docket of the district court for years." Hilao, 103 F.3d at 786-87. See also Walker & Monahan, Sampling Liability, supra, at 343 ("Individualized information should be used where it is practical—i.e., cost effective—to obtain. If individual information is not practical to obtain, however, sampling should be used so that a judgment can be reached efficiently and expeditiously.").
Under the balancing test set forth in Doehr, the use of statistical evidence (subject to satisfaction of the Daubert criteria) by plaintiffs does not violate due process strictures. See Michael J. Saks & Peter David Blanck, Justice Improved: The Unrecognized Benefits of Aggregation and Sampling in the Trial of Mass Torts, 44 Stan. L.Rev. 815, 826-32 (1992) (statistical sampling is both sufficient and necessary to meet due process requirements in mass tort cases). The interests of the private parties, the accuracy of the procedures, and an efficient use of court resources argue in favor of using statistical models along with individual deposition lay testimony, expert testimony, and documentary evidence.
4. Jury Right
The use of aggregated proof on plaintiffs' claims does not violate the Seventh Amendment. A contrary view would require concluding that the Constitution establishes fixed limitations on the methods of proof a particular party may offer. Requiring such a horse-and-buggy interpretation for trials in a computer-guided-rocket age seems somewhat far-fetched. Courts cannot ignore and deny themselves
The Seventh Amendment of the Constitution protects the right to a jury trial. It reads: "In suits at common law, where the value in controversy shall exceed twenty Dollars, the right of trial by jury shall be preserved, and no fact tried by a jury shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law." U.S. Const. amend., VII. The Amendment "was designed to preserve the basic institution of jury trial in only its most fundamental elements, not the great mass of procedural forms and details, varying even then so widely among common-law jurisdictions." See Galloway v. United States, 319 U.S. 372, 392, 63 S.Ct. 1077, 87 L.Ed. 1458 (1943); Ex parte Peterson, 253 U.S. 300, 309-12, 40 S.Ct. 543, 64 L.Ed. 919 (1920).
Over the past two centuries, the primary concern in interpreting the Seventh Amendment has been to preserve the jury's role as a finder of fact, without constitutionally freezing evidentiary and trial procedures. Justice Brandeis emphasized the necessity of adapting the jury trial right to contemporary realities in Ex parte Peterson:
Id. at 309-10, 40 S.Ct. 543 (citations omitted); see also Gasperini v. Center for Humanities, Inc., 518 U.S. 415, 436 n. 20, 116 S.Ct. 2211, 135 L.Ed.2d 659 (1996) ("If the meaning of the Seventh Amendment were fixed at 1791, our civil juries would remain, as they unquestionably were at common law, twelve good men and true.") (internal citations and quotations omitted); Margaret L. Moses, What The Jury Must Hear: The Supreme Court's Evolving Seventh Amendment Jurisprudence, 68 Geo. Wash. L.Rev. 183, 199 ff., 207 (2000) (discussing procedural changes approved by Supreme Court; the Court has "repeatedly held that [it is] the substance of the jury trial right—the jury's fact-finding role—[which] must be preserved"); Austin Wakeman Scott, The Reform of Civil Procedure, 31 Harv. L.Rev. 669, 671-78 (1918) (describing historical evolution of jury trials).
The historical record demonstrates that the framers' main objective in drafting the Seventh Amendment was to limit the ability of an appellate court to overturn a civil jury's finding of fact. There is no indication they intended to constrain the trial judge's substantial discretion to employ appropriate procedural mechanisms in managing a trial so as to permit the jury to arrive at the truth—or as near to the truth as time and humankind's limitations allow. See Simon v. Philip Morris Inc., 200 F.R.D. 21, 33-36 (E.D.N.Y.2001) (detailing British common law and early American understanding of the jury trial right).
The late Chief Justice Rehnquist observed that whatever procedural changes are made, they cannot be allowed to invade the "jury's province"—its fact-finding power. Parklane Hosiery Co. v. Shore, 439 U.S. 322, 345-46, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979) (Rehnquist, J., dissenting).
Courts must be especially careful not to hobble the jury system by excluding potentially useful evidence. Prematurely cutting off the flow of evidence to the jury generally favors defendants, who do not have the burden of proof on most issues, leading not only to a violation of the Constitution, but a tilting of the scales of justice. See, e.g., John Caher, Court Seen As Slow In Expanding Tort Claims, Criminal Defendant's Rights, N.Y.L.J., Jul. 24, 2001, at 1 (describing trend against private litigants in decisions by New York Court of Appeals); Margaret A. Berger, Upsetting the Balance Between Adverse Interests: Expert Testimony in Toxic Tort Litigation, 64 L. & Contemp. Probs. 289, 326 (2001) (discussing Daubert; "The Supreme Court's trilogy on expert proof has empowered federal judges to adjust the balance in toxic tort cases to favor defendants . . . by . . . converting rulings on the admissibility of evidence into rulings on the sufficiency of evidence. The result is that the critical issue of causation in toxic tort is being decided by federal judges, not . . . jurors, and in pretrial proceedings, rather than at trial."); Kevin M. Clermont & Theodore Eisenberg, Appeal from Jury or Judge Trial: Defendants' Advantage, 3 Am. L. & Econ. Rev. 125, 128 (2001) (appellate courts are more inclined to overturn plaintiff's verdicts because of perceived pro-plaintiff bias by juries); Kevin M. Clermont & Theodore Eisenberg, Anti-Plaintiff Bias in the Federal Appellate Courts, 84 Judicature 128 (2000) (same); Lucinda M. Finley, Guarding the Gate To The Courthouse: How Trial Judges are Using Their Evidentiary Screening Role to Remake Tort Causation Rules, 49 DePaul L.Rev. 335, 337 (1999) (evidentiary gate-keeping "substantially increases plaintiffs' burden of proving individual causation, and it also furthers the trend in toxic tort cases to shift the allocation of power away from juries to judges"); Samuel Issacharoff & George Lowenstein, Second Thoughts About Summary Judgment, 100 Yale L.J. 73, 75 (1990) ("[L]iberalized summary judgment inhibits the filing of otherwise meritorious suits and results in a wealth transfer from plaintiffs as a class to defendants as a class."); Jeffrey W. Stempel, A Distorted Mirror: The Supreme Court's Shimmering View of Summary Judgment, Directed Verdict, and the Adjudication Process, 49 Ohio St. L.J. 95, 99 (1988) (describing Supreme Court's 1986 trilogy of summary judgment cases as "faulty and ill-conceived in light of
The essential protections of the Seventh Amendment are enhanced, not reduced, by procedures which streamline and focus jury fact-finding. The jurors in this district are generally educated and aware of current technology; they would justly feel insulted by being denied modern fact finding techniques.
Excluding information on the ground that jurors are too ignorant to evaluate it properly may have been appropriate in England at a time when a rigid class society created a wide gap between royal judges and commoner, juries, but it is inconsistent "with the realities of our modern American informed citizens and the responsibility of independent thought in a working society." United States v. Shonubi, 895 F.Supp. 460, 493 (E.D.N.Y.1995), rev'd on other grounds, 103 F.3d 1085 (2d Cir.1997). See also James Bradley Thayer, Select Cases on Evidence at the Common Law 1 (1892) ("Reasoning, the rational method of settling disputed questions, is the modern substitute for certain formal and mechanical tests which flourished among our ancestors for centuries, and in the midst of which the trial by jury emerged.") (internal quotation marks omitted).
Fidelity to equitable and legal principles requires the use of statistical proof rather than compelling individualized showings as to tens of millions of claims. See Young v. Higbee Co., 324 U.S. 204, 209, 65 S.Ct. 594, 89 L.Ed. 890 (1945) ("Equity looks to the substance and not merely to the form."). But see Mass. Laborers' Health & Welfare Fund v. Philip Morris, Inc., 62 F.Supp.2d 236, 246 (D.Mass.1999) (union trust fund could not use unjust enrichment theory to evade requirement of individual showing of damages for costs incurred because of medical injuries suffered by its smoking members; "[t]he premise of the unjust enrichment theory—the defendants' legal responsibility for medical expenses—must be determined one participant at a time").
The equity in allowing statistical proof of reliance and causation is underscored by the massive nature of the fraud alleged. If plaintiffs' allegations are borne out, the defendants sought to mislead the whole of the American public by distorting the entire body of public knowledge on the health risks of "light" cigarettes. By carrying out this alleged widespread scheme, it was the defendants themselves who made a claim-by-claim showing virtually impossible.
This class action is predicated on the theory that defendants formed an association-in-fact enterprise "to defraud the public into believing that light cigarettes were a healthy alternative to regular cigarettes . . . in order to maximize sales and profits." Pls.' Sec. Am. Compl. ("Compl.") ¶ 200 (Docket No. 95). Plaintiffs plan to prove defendants' liability to the class on an aggregate basis, and to distribute the total damages among individual class members through a proof of claim procedure.
Describing this proposed litigation scheme as a form of "fluid recovery," defendants contend it is illegal, requiring denial of certification and dismissal. They argue that the use of a fluid recovery is foreclosed by the Court of Appeals for the Second Circuit's decisions in Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir. 1973), vacated on other grounds, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974), and Van Gernert v. Boeing Co., 553 F.2d 812 (2d Cir.1977), aff'd on other grounds, 444 U.S. 472, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980).
For reasons described below, the plaintiffs' proposed use of fluid recovery is permissible. It does not require denial of certification and dismissal. Although the Court of Appeals for the Second Circuit has appeared from time to time in individual cases to deny the power of courts in this circuit to use what have been characterized as a wide variety of forms of fluid recovery, it is not the rule of the circuit or of the nation to deny fluid recovery in every case. Such a rule could not be the law under present societal conditions. Cf. Stephen Breyer, Active Liberty 57 (2005) (writing that "principle must be implemented against the backdrop of a highly complex net of technology-based social problems").
1. Fluid Recovery
a. Nature and use
The phrase "fluid recovery" has been used to refer to a number of different methods of "indirect distribution of unclaimed funds of a class monetary recovery." Newberg on Class Actions § 10:17 n. 7 (4th ed.2002). In addition, it refers to "the entire procedure of classwide calculation of damages and distribution of the aggregate amount or any unclaimed balance . . . to injured class members or to others under cy pres . . . or other doctrines." Id. Recoveries described as "fluid" include distribution of damages through price reductions rather than by cash to individual plaintiffs, see, e.g., Bebchick v. Public Utilities Commission, 318 F.2d 187 (D.C.Cir.1963); distribution of settlement or damage funds left unclaimed by individuals to nonprofit organizations or to states for uses intended to benefit class members, see, e.g., Jones v. National Distillers, 56 F.Supp.2d 355 (S.D.N.Y.1999); West Virginia v. Chas. Pfizer & Co., 314 F.Supp. 710 (S.D.N.Y.1970), aff'd, 440 F.2d 1079 (2d Cir.1971); In re Mexico Money Transfer Litig., 267 F.3d 743 (7th Cir. 2001); Nelson v. Greater Gadsden Hous. Auth., 802 F.2d 405 (11th Cir.1986); Bruno v. Superior Court, 127 Cal.App.3d 120, 179 Cal.Rptr. 342 (Cal.Ct.App.1981); and distribution of damages calculated on a classwide basis to individual plaintiffs or through various indirect means. See, e.g., In re Antibiotic Antitrust Actions, 333 F.Supp. 278 (S.D.N.Y.1971); Romero v. Philip Morris, 137 N.M. 229, 109 P.3d 768 (2005); Gordon v. Boden, 224 Ill.App.3d 195, 166 Ill.Dec. 503, 586 N.E.2d 461 (Ill. App.Ct.1991); Daar v. Yellow Cab Co., 67 Cal.2d 695, 63 Cal.Rptr. 724, 433 P.2d 732 (Cal.1967). Because the phrase is used with such imprecision, care must be taken to determine whether the "fluid recovery" approved or disapproved in a particular case is at all similar to the distribution system proposed in the case at hand.
What all the cases on fluid recovery have in common is their attempt to grapple with some of the realities of modern mass litigation. See generally Monograph, Individual Justice in Mass Tort Litigation (1995) (describing the complexities of modern mass litigation and the attempts of courts to balance pragmatism requiring wholesale distribution with fairness to individual
Mass cases present complex problems for courts in terms of damage calculation and damage distribution. If the defendant's liability is determined on a plaintiff-by-plaintiff basis, the court will be required to "compel a parade of individual plaintiffs" to appear before it for near-identical damage calculations. Antibiotic Antitrust Actions, 333 F.Supp. at 289. See also Daar, 67 Cal.2d at 715-16, 63 Cal.Rptr. 724, 433 P.2d 732 ("In an effort to undermine the sufficiency of the complaint, defendant argues that . . . [i]t is perfectly obvious that if [plaintiff] is allowed to maintain a class action, every single claimant must appear in court and prove his claim. However, the complaint alleges that the exact amount of the overcharge . . . is known to the defendant and can be ascertained therefrom. Assuming these facts to be true . . . no appearance by the individual members of the class will be required to recover the full amount of the overcharges.") (internal quotations omitted). When the individual claims are small, "traditional methods of proof [may not be] worthwhile," since many consumers are unlikely to "retain records of small purchases for long periods of time." California v. Levi Strauss & Co., 41 Cal.3d 460, 472, 224 Cal.Rptr. 605, 715 P.2d 564 (1986). And even when the defendant's total liability may be calculated easily—as in a settlement or under a law with statutorily fixed damages provisions—distribution to all of the affected consumers may prove impossible. See, e.g., Mexico Money Transfer Litig., 267 F.3d 743; Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301 (9th Cir.1990).
Fluid recovery often provides a reasonable and fair means to litigate these complex claims and distribute damages without an intolerable burden on courts and litigants. See, e.g., Agent Orange, 597 F.Supp. at 841-42; Antibiotic Antitrust Actions, 333 F.Supp. at 281-83; Six Mexican Workers, 904 F.2d at 1305; 7AA Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1784 (1972); Developments in the Law — Class Action, 89 Harv. L.Rev. 1454, 1565 (1976).
These mechanisms were first used as a means of distributing settlement monies where individual class members would be difficult to identify or unlikely to come forward. By distributing settlement amounts for uses that indirectly benefit members of the class, courts are able to promote the deterrent and compensatory policies of substantive laws in situations where recovery would otherwise be impracticable. See, e.g., Levi Strauss & Co., 41 Cal.3d at 472, 224 Cal.Rptr. 605, 715 P.2d 564 (describing the importance of fluid recovery as a tool for fulfilling the policies of the underlying causes of action in consumer class actions).
This type of fluid recovery is more precisely referred to as a "cy pres" remedy, in reference to the "trust doctrine that if funds in a charitable trust can no longer be devoted to the purpose for which the trust was created, they may be diverted to a related purpose." Mirfasihi v. Fleet Mortg. Corp., 356 F.3d 781, 784 (7th Cir. 2004). See also Black's Law Dictionary (6th ed. 1990) ("The rule of cy pres is a
As fluid recovery practice has evolved, it has been used in situations where liability has been decided by the court as well as in settlements. In decided cases, fluid recovery generally involves three steps. First, defendant's aggregate liability is determined in a single, class-wide adjudication and paid into a class fund. Levi Strauss & Co., 41 Cal.3d at 472, 224 Cal.Rptr. 605, 715 P.2d 564. Second, "individual class members are afforded an opportunity to collect their individual shares," usually through a simplified proof of claim procedure. Id. Third, any residue remaining after individual claims have been paid is distributed to the class' benefit under cy pres or other doctrines. See Gordon, 224 Ill.App.3d at 204-205, 166 Ill.Dec. 503, 586 N.E.2d 461; Cicelski v. Sears, Roebuck & Co., 132 Mich.App. 298, 304, 348 N.W.2d 685 (Ct.App.1984). This three-step procedure eliminates the need for repetitive litigation of individual damage claims, while allowing courts to hold defendants liable for the full harm caused by them, and compensating those harmed. Without this use of fluid recovery, "some class actions . . . would neither compensate nor deter, for to allow the defendant to insist upon proof of individual claims [would] enable it to benefit from the cumbersome nature of legal proceedings and the lack of sophistication and indolence of the consumer, and [would] reward [its] foresight in stealing from the multitude in small amounts." Bruno, 127 Cal.App.3d at 127, 179 Cal.Rptr. 342 (internal quotations omitted).
b. Interaction with procedural and substantive law
Fluid recovery is consistent with the text and spirit of Rule 23 of the Federal Rules of Civil Procedure controlling class actions. See, e.g., 7AA Wright & Miller § 1784; Note, Managing the Large Class Action: Eisen v. Carlisle & Jacquelin, 87 Harv. L.Rev. 426, 447 (1973). "Rule 23 does not explicitly authorize . . . fluid recovery," but "this alone can hardly be taken to mean that it is prohibited . . . since the rule is silent about remedies of any nature." Managing the Large Class Action: Eisen v. Carlisle & Jacquelin, 87 Harv. L.Rev. at 447. The class action rule "stems from equity," Amchem Prods. v. Windsor, 521 U.S. 591, 613, 117 S.Ct. 2231, 138 L.Ed.2d 689 (1997), and Rule 23(b)(3), in particular, is designed to provide justice on an equitable basis to injured parties whose cases would be impractical or impossible to litigate if handled individually. See Fed.R.Civ.P. 23(b)(3) advisory committee notes (1966); see also Dolgow v. Anderson, 43 F.R.D. 472, 484-85 (E.D.N.Y.1968), reed on other grounds, 438 F.2d 825 (2d Cir.1970) ("The class action is particularly appropriate where
While courts must stay within the bounds of due process and avoid altering substantive law in violation of the Rules Enabling Act when shaping the remedies in Rule 23(b)(3) actions, the Rule provides desirable flexibility and grants the courts broad equitable powers in litigation management. See, e.g., Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 560 (2d Cir.1968) ("[T]he Advisory Committee on the Rules of Civil Procedure has completely redrafted Rule 23 in order to provide a thoroughly flexible remedy. Throughout the course of a proceeding courts are given complete control to give assurance that the procedures adopted are fair, reasonable and effective."); 7AA Wright & Miller § 1784 ("[C]ourts must use their discretion, and in many cases their ingenuity, to shape decrees or to develop procedures for ascertaining damages and distributing relief that will be fair to the parties but will not involve them in an unduly burdensome administration of the award."); cf. In re Joint Eastern and Southern District Asbestos Litig., 129 B.R. 710, 800 (E.D.N.Y. 1991), vacated on other grounds, 982 F.2d 721 (2d Cir.1992) (class action is a device created to "foster[ ] judicial economy and efficiency") (internal quotes omitted).
Whether or not fluid recovery should be employed in a particular class action is determined by reference to the need to vindicate the substantive law at issue. Simer v. Rios, 661 F.2d 655, 676-78 (7th Cir.1981). See also In re Federal Skywalk Cases, 680 F.2d 1175, 1190 (8th Cir.1982) (Heaney, J., dissenting) (permissibility of aggregation depends on policy of cause of action); Newberg on Class Actions § 10:23 (4th ed.2002) ("objectives of compensation or deterrence and questions about their validity must properly focus on the substantive laws underlying any particular class action"); Developments in the Law—Class Action, 89 Harv. L.Rev. 1454, 1525-26 (1976) (courts should use substantive law to determine the appropriateness of fluid recovery). While fluid recovery is not an appropriate remedy in all Rule 23(b)(3) actions, see In re Folding Carton Antitrust Litigation, 744 F.2d 1252 (7th Cir.1984); Simer, 661 F.2d at 676-79; Cicelski v. Sears, Roebuck & Co., 132 Mich.App. 298, 304-10, 348 N.W.2d 685 (Ct.App. 1984), it is sometimes the only practicable way to implement the goals of the substantive law under which a federal mass litigation case is prosecuted.
"The general inquiry is whether the use of . . . [fluid recovery] is consistent with the policy or policies reflected by the statute violated." Simer, 661 F.2d at 676. This approach can be particularized into an assessment of the extent to which "the statute embodies policies of deterrence, disgorgement, and compensation," id., and of the "strength and scope of the statute's concern" for those policies. Developments in the Law Class Action, 89 Harv. L.Rev. 1454, 1527 (1976). The application of fluid recovery is particularly appropriate where a corporate defendant "illegally profits" through violation of a common law principle or "a statute which was intended to regulate socially opprobrious conduct such as that reflected in the antitrust or securities laws." Simer, 661 F.2d at 676-77. It is least appropriate where there may be a danger of overdeterrence. See Developments in the Law—Class Action, 89 Harv. L.Rev. 1454, 1527-28 (1976) (exploring the way in which courts should weigh concerns about deterrence).
c. General law
Fluid recovery in appropriate cases has received wide support from courts and
Some federal appellate courts have evinced concern about fluid recovery. In particular cases the Second, Third, Fourth, Eighth, and Ninth Circuit Courts of Appeals have all expressed opposition to the use of fluid recovery. See Van Gernert v. Boeing Co., 553 F.2d 812, 815 (2d Cir. 1977), aff'd on other grounds, 444 U.S. 472, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980); Eisen v. Carlisle & Jacquelin, 479 F.2d 1005, 1018 (2d Cir.1973), vacated on other grounds, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974); Windham v. Am. Brands, Inc., 565 F.2d 59 (4th Cir.1977); Kline v. Coldwell, Banker & Co., 508 F.2d 226 (9th Cir.1974); In re Hotel Tel. Charges, 500 F.2d 86, 89-90 (9th Cir.1974), Dumas v. Albers Med., No. 03-0640-CW-GAF, 2005 WL 2172030 (W.D.Mo. Sept. 7, 2005); Al Barnett & Son, Inc. v. Outboard Marine Corp., 64 F.R.D. 43, 55 (D.Del.1974). The Second, Fourth, and Ninth Circuit Courts of Appeals have made a few sweeping statements that have been misunderstood by some commentators as wholesale rejections of the concept. See Eisen, 479 F.2d at 1018 (in dicta, describing fluid recovery as "illegal, inadmissible . . . and wholly improper"); Kline, 508 F.2d at 236 n. 8 (responding to a "suggestion" that fluid recovery might be used with the dicta that it would alter substantive law in violation of the Rules Enabling Act); Windham, 565 F.2d at 72 (citing the above quoted language from Eisen to reject fluid recovery). While the
Courts that have declined to approve fluid recovery have been concerned that such mechanisms might violate the due process clause, see Eisen, 479 F.2d at 1018; Barnett, 64 F.R.D. at 55, or that they might alter substantive law in violation of the Rules Enabling Act. See Eisen, 479 F.2d at 1014; Windham, 565 F.2d at 66; Kline, 508 F.2d at 236 n. 8; In re Hotel, 500 F.2d at 90. Others have expressed concern that fluid recovery might deprive defendants in class actions of their Seventh Amendment right to trial by jury. Kline, 508 F.2d at 236 n. 8. Because appellate courts have often been oracular in their discussion of fluid recovery, it can be difficult to determine the precise source and dimensions of their anxiety. Objections appear to arise primarily out of the perception that fluid recovery "relievers] plaintiff classes of the burden of individual proof of damages," Nelson, 802 F.2d at 409, and therefore violates the due process clause and the Seventh Amendment by denying the defendant an opportunity to challenge the plaintiffs' claims on an individual basis before the jury. See Kline, 508 F.2d at 236 n. 8. Insofar as "individual" proof of damages is thought to be an essential element of a claim, any perceived lessening of the plaintiffs' burden on this point may be said to "eliminat[e] or erod[e]" traditional or statutory requirements and thereby to alter substantive law in violation of the Rules Enabling Act. In re Hotel, 500 F.2d at 90; see also Eisen, 479 F.2d at 1014; Barnett, 64 F.R.D. at 50.
Despite these occasional misgivings, fluid recovery has been accepted in a wide variety of contexts by nearly all federal circuits that have considered it. It is most commonly employed by federal courts for damage distribution in settled cases. See, e.g., Beecher, 575 F.2d 1010; Chas. Pfizer & Co., 314 F.Supp. 710; Jones v. Nat'l Distillers, 56 F.Supp.2d 355 (S.D.N.Y. 1999); Agent Orange, 611 F.Supp. 1396; In re Mexico Money Transfer Litig., 267 F.3d 743 (7th Cir.2001); Powell v. Georgia-Pacific Corp., 119 F.3d 703 (8th Cir. 1997); In re Motorsports Merch. Antitrust Litig., 160 F.Supp.2d 1392 (N.D.Ga.2001); Colson v. Hilton Hotels Corp., 59 F.R.D. 324 (N.D.Ill.1972). But courts have also utilized fluid recovery in decided cases. See, e.g., Antibiotic Antitrust Actions, 333 F.Supp. 278; Democratic Cent. Comm., 84 F.3d 451; Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301 (9th Cir.1990); Nelson, 802 F.2d 405; Am. Int'l Pictures v. Price Enter., 636 F.2d 933 (4th Cir.1980) (expressing disapproval of "fluid recovery" while applying an aggregate damage determination and distribution scheme that most would describe as "fluid"); L.C.L. Theatres v. Columbia Pictures, 421 F.Supp. 1090 (N.D.Tex.1976) (same); Bebchick, 318 F.2d 187.
Federal cases involving fluid recovery have been brought under a wide range of substantive laws, including the Clayton Act, see, e.g., Chas. Pfizer & Co., 314 F.Supp. 710; Motorsports, 160 F.Supp.2d 1392, the Securities and Exchange Act, see, e.g., Beecher, 575 F.2d 1010; National Distillers, 56 F.Supp.2d 355, civil RICO, see Mexico Money Transfer Litig., 267 F.3d 743, Title VII, see Powell, 119 F.3d 703, the Farm Labor Contractor Registration Act, see Six Mexican Workers, 904 F.2d 1301, and state contract laws. See Nelson, 802 F.2d 405.
Most federal courts that have approved the use of fluid recovery have not found it
Id.
Of the eleven states that have confronted the issue, at least nine have endorsed the use of fluid recovery. See, e.g., Buchholz Mortuaries, Inc. v. Dir. of Revenue, 113 S.W.3d 192, 195-96 (Mo.2003) (Wolff, J., concurring); Boyle, 820 A.2d at 563; Ritter, Laber & Assocs. v. Koch Oil, Inc., 623 N.W.2d 424 (N.D.2001); Daar, 67 Cal.2d 695, 63 Cal.Rptr. 724, 433 P.2d 732; Romero v. Philip Morris Inc., 137 N.M. 229, 109 P.3d 768 (2005); Muise v. GPU, Inc., 371 N.J.Super. 13, 851 A.2d 799 (Ct. App.Div.2004) (fluid recovery is applied under N.J.R. Civ. P. 4:32-2(c) only when identities of class members are not known); Gordon v. Boden, 224 Ill.App.3d 195, 166 Ill.Dec. 503, 586 N.E.2d 461 (Ill. App.Ct.1991); Cicelski v. Sears, Roebuck & Co., 132 Mich.App. 298, 348 N.W.2d 685 (Ct.App.1984) (approving use of fluid recovery in appropriate cases, although finding its use unwarranted in the case at hand, given that specific deterrence was not a concern); Bruno v. Superior Court, 127 Cal.App.3d 120, 179 Cal.Rptr. 342 (Ct. App.1981); Lieberman v. Howard Johnson's, Inc., 68 Pa. D. & C. 2d 129 (Com.Pl. 1973); cf. Dallas County Cmty. Coll. Dist. v. Bolton, 89 S.W.3d 707, 722 (Tex. App.2002) (no Texas court has held fluid recovery to be unlawful; the issue need not be reached, however, because the award under dispute is not "fluid"). But see Jacksonville v. Venhaus, 302 Ark. 204, 210, 788 S.W.2d 478 (1990) (rejecting fluid recovery in a tax recovery case on the ground that "monies collected for one purpose cannot be used for another"); Reader v. Magma-Superior Copper Co., 110 Ariz. 115, 515 P.2d 860 (1973) (in a case brought under state environmental laws, affirming trial court's dismissal of suit as a class action because the Second Circuit Court of Appeals' decision in Eisen, insofar as it disapproves of the use of fluid recovery, "effectively disposes of any previously existing possibility that the instant case
State courts have embraced fluid recovery as a means of fulfilling the promise of class actions as a consumer protection device and as a way of ensuring that corporate wrongdoers do not retain "ill gotten gains" simply because of the administrative difficulties associated with proving and distributing small individual damage claims. Bruno, 127 Cal.App.3d at 127, 179 Cal.Rptr. 342; see also Levi Strauss & Co., 41 Cal.3d at 471-72, 224 Cal.Rptr. 605, 715 P.2d 564; Gordon, 224 Ill.App.3d at 204-05, 166 Ill.Dec. 503, 586 N.E.2d 461 (in a "large and impersonal society, class actions are often the last barricade of consumer protection," providing redress for "frauds that cause small damages to large groups") (internal quotations omitted). A significant percentage of fluid recovery cases in the state courts are brought under state antitrust and consumer protection laws. See, e.g., Boyle, 820 A.2d 561 (District of Columbia antitrust and consumer protection laws); Levi Strauss & Co., 41 Cal.3d 460, 224 Cal.Rptr. 605, 715 P.2d 564 (California antitrust law); In re Vitamin Cases, 107 Cal.App.4th 820, 132 Cal.Rptr.2d 425 (Ct.App.2003) (California antitrust and unfair competition laws); Romero, 137 N.M. 229, 109 P.3d 768 (New Mexico Antitrust Act); Corbett v. Superior Court, 101 Cal.App.4th 649, 125 Cal.Rptr.2d 46 (Ct.App.2002) (California's Unfair Competition Law); Gordon, 224 Ill.App.3d 195, 166 Ill.Dec. 503, 586 N.E.2d 461 (Illinois' Consumer Fraud and Deceptive Business Practices Act); but see Madrid v. Perot Sys. Co., 130 Cal.App.4th 440, 30 Cal.Rptr.3d 210 (Ct.App.2005) (non-restitutionary fluid recovery not an available remedy in a class action under California's Unfair Competition Law); Prata v. Superior Court, 91 Cal.App.4th 1128, 111 Cal.Rptr.2d 296 (Ct.App.2001) (same). Fluid recovery has also been approved in a number of state common law contract and conversion actions to recover overcharges by corporations. See, e.g., Daar, 67 Cal.2d 695, 63 Cal.Rptr. 724, 433 P.2d 732 (class suit to recover overcharges made by defendant taxicab company); Lieberman, 68 Pa. D. & C. 2d 129 (users of the Pennsylvania Turnpike suing as third-party beneficiaries to recover overcharges by restaurant and oil companies under contract with the state); Ritter, Laber & Assocs., 623 N.W.2d 424 (conversion action regarding companies' acquisition of oil).
A number of state courts have addressed the possible due process issues raised by fluid recovery. Assuming that courts' unexplained due process objections to fluid recovery must rest upon concerns about aggregate proof of damages, the Michigan Court of Appeals concluded that defendants "hardly seem[] prejudiced by being restricted to only one hearing on common issues. Even though the calculation of damages might involve issues on which a hearing would . . . be required[,] . . . it has never been thought that due process required multiple hearings when there was one full and fair adjudication of the merits." Cicelski, 132 Mich.App. at 307, 348 N.W.2d 685; see also Daar, 67 Cal.2d at 715-16, 63 Cal.Rptr. 724, 433 P.2d 732 (denying defendant's contention that "every single claimant must appear in court and prove his claim"); Gordon, 224 Ill.App.3d at 205, 166 Ill.Dec. 503, 586 N.E.2d 461 (citing Cicelski for the proposition that a defendant is not prejudiced by only being allowed "one hearing on common issues"). The California Court of Appeals has persuasively explained that "[u]p until the time when damages are distributed,
2. Second Circuit Law on Fluid Recovery
Although the Second Circuit Court of Appeal's decision in Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir.1973), vacated on other grounds, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974), has been cited by some as the foundation of some federal court objections to fluid recovery, see, e.g., Windham v. Am. Brands, Inc., 565 F.2d 59, 72 (4th Cir.1977); In re Hotel Tel. Charges, 500 F.2d 86, 90 (9th Cir. 1974); Reader v. Magma-Superior Copper Co., 110 Ariz. 115, 116, 515 P.2d 860 (1973), the actual state of Second Circuit law concerning the use of fluid recovery is itself somewhat fluid. See Developments in the Law—Class Action, 89 Harv. L.Rev. 1454, 1535 (1976).
Fluid recovery was first used in the Second Circuit in West Virginia v. Chas. Pfizer & Co., 314 F.Supp. 710 (S.D.N.Y. 1970), aff'd, 440 F.2d 1079 (2d Cir.1971) and the Antibiotic Cases, 333 F.Supp. 278 (S.D.N.Y.1971), both of which involved civil antitrust actions brought against pharmaceutical companies by government entities, hospitals, drug retailers, and individual consumers. In Pfizer, the District Court for the Southern District of New York approved a settlement agreement between the defendants and several of the plaintiffs that called for the states to recover damages on behalf of consumers who had not filed individual claims. See Pfizer, 314 F.Supp. at 728. Any part of the recovery that was not claimed by individual consumers was to be held by the states subject to the court's order, and "[i]t was anticipated that the court might consider ways in which to apply the excess funds to achieve socially desirable objectives." 7AA Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure § 1784 (1972). Approval of the settlement was upheld by the Court of Appeals. Pfizer, 440 F.2d 1079.
In the Antibiotic Cases, the District Court for the Southern District of New York held that seven states that had refused the Pfizer settlement were entitled to maintain their actions against the pharmaceutical companies as class actions on behalf of individual consumers. Antibiotic Antitrust Actions, 333 F.Supp. at 284. The actions were certified on the assumption that the issues of liability, fact of damages, and quantum of damages could all be calculated on a class-wide basis, with individual claims made against the judgment awarded to the class and the disposition of any residue left for later determination. Id. at 287-90. While the case presented some management difficulties, the district court found that these problems did not "preclude a finding that the class action is `superior to other available methods for the fair and efficient adjudication of the controversy.'" Id. at 282 (emphasis in original). According to the court,
Id. at 282-83 (emphasis in original).
The court also responded to the defendants' due process objections to class-wide proof of damages. It found that the use of such a procedure did not impinge upon the defendants' constitutional rights. Id. at 289. This section of the court's opinion has already been adverted to.
Denying the defendants' motion for a writ of mandamus, the Court of Appeals for the Second Circuit declined an opportunity to forestall the district court's proposed use of fluid recovery in the Antibiotic Cases. Pfizer, Inc. v. Lord, 449 F.2d 119, 119 (2d Cir.1971). The Court of Appeals observed that the procedures approved by the lower court were essentially identical to those used in the Pfizer settlement and presented even less of a due process problem than they had in Pfizer, given the plaintiffs' proposal to employ actual rather than publication notice. Id. It is important to note that the Court of Appeals was not expressing approval of a fluid recovery resulting from settlement, but rather one that assumed a trial.
The ostensible turning point regarding the use of fluid recovery in the Second Circuit came in 1973, when the Court of Appeals handed down its decision in Eisen v. Carlisle & Jacquelin. The plaintiff in Eisen brought suit on behalf of himself and all other buyers and sellers of odd lot shares on the New York Stock Exchange, alleging that two firms—Carlisle & Jacquelin and DeCoppet & Doremus—had conspired to fix the odd lot price differential and had charged excessive fees in violation of the Sherman Act. Eisen v. Carlisle & Jacquelin, 41 F.R.D. 147, 148 (S.D.N.Y.1966), rev'd, 391 F.2d 555 (2d Cir. 1968). The District Court for the Southern District of New York initially dismissed the suit as a class action on the grounds that the rights and interests of each of the several hundred thousand to several million class members were far too diverse and Eisen's individual interest far too small for Eisen to adequately represent the interests of the class or for common questions to predominate. Id. at 150-51. In addition, the district court expressed concern about the notice requirements of Rule 23(c)(2), given that Eisen had proposed providing only press advertisements and notices to stock exchange firms. Id. at 151.
Eisen appealed, and the Court of Appeals for the Second Circuit reversed. Eisen v. Carlisle & Jacquelin, 391 F.2d 555 (2d Cir.1968). Its first reaction was to recognize the realities of mass litigation and approve fluid recovery as one device available in the law's armory. The Court of Appeals held that the high number of potential class members and the small value of Eisen's individual claim were not adequate grounds for a finding of inadequate representation. Id. at 563. It also held that there had been "an adequate demonstration that common questions of law or fact predominate." Id. at 566.
On remand, the district court determined that the requirements of a Rule 23(b)(3) class action had been met. Eisen v. Carlisle & Jacquelin, 52 F.R.D. 253, 272 (S.D.N.Y.1971), rev'd 479 F.2d 1005 (2d Cir.1973), vacated on other grounds, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). The court found that the case was manageable as a class action. Id. at 261-65. As the Court of Appeals had indicated, the most difficult problem facing the district court on this point was the issue of recovery. The class was defined as "all public individuals, institutions, and intermediaries who bought and/or sold odd-lots . . . on the NYSE" from May 1, 1962 to June 30, 1966. Id. at 261. This group consisted of roughly 6,000,000 people, only 2,000,000 of whom were readily identifiable. Id. at 257. Estimated class members' individual damage claims averaged around three dollars and ninety cents. Eisen, 479 F.2d at 1010. It seemed unlikely that more than a few individuals would come forward to prove and claim their individual damages. As a result, if the defendants' liability was calculated by summing individually submitted claims, the final judgment was likely to total less than the administrative costs of litigation. In order to avoid this problem, the district court proposed that the class' damages be determined in the aggregate, from defendants' own records and from industry reports. Eisen, 52 F.R.D. at 262. Once aggregate damages had been determined, a scheme of fluid recovery would be employed. Id. at 264-65. Those individual class members who came forward would have their claims satisfied and the residue would be distributed in some manner to "the class as a whole." Id. at 264. The court left the exact manner of this distribution undecided, but noted that one possibility would be to lower the future cost of odd-lot trading. Id. at 265.
The district court also proposed a method of providing notice consonant with both Rule 23 and due process. Id. at 265-68. Although Eisen's initial proposal of publication notice combined with mailed notice to stock exchange firms was insufficient to meet the requirements of Rule 23(c)(2), considering that 2,000,000 individual class members were readily identifiable, the court did not find that either the Rule or due process required Eisen to mail notice to each one of these identifiable individuals. Id. at 267. Instead, the court directed that individual notice be mailed to the
In 1973, on defendants' appeal of the class certification, the Second Circuit Court of Appeals again reversed, holding that Eisen's suit was unmanageable as a class action. Eisen v. Carlisle & Jacquelin, 479 F.2d 1005 (2d Cir.1973), vacated on other grounds, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). The Court of Appeals was not unanimous in its evaluation of the second Eisen appeal. Circuit Judge Hays concurred only in the result on notice grounds and dissented from a denial of a rehearing en banc, while Oakes, with whom Timbers concurred, filed an opinion dissenting from the denial of a rehearing en banc. Id. at 1020-26. Judges Kaufman, Feinberg, Mansfield, and Mulligan thought an en banc hearing was not necessary because the Supreme Court would almost certainly grant certiorari. Id. at 1020. In fact, the Supreme Court did grant certiorari, but decided the case on the question of notice, not fluid recovery. Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). See the discussion of Eisen in the Supreme Court, infra. Judge Hays' brief and careful opinion refusing to adopt the majority's anti-fluid recovery stance seems to have been informed by his many years of teaching civil procedure as a tenured member of Columbia Law School's faculty.
The Court of Appeals' primary objection to the district court's order concerned notice. Because 2,000,000 members of the class could be readily identified, the district court was required to order individual notice to these class members. Id. at 1015. According to the Court of Appeals, the district court's failure to do so not only jeopardized the rights of the absent class members, but was in direct conflict with Rule 23(c)(2)'s command that "for any class certified under Rule 23(b)(3), the court must direct to class members the best notice practicable under the circumstances, including individual notice to all members who can be identified through reasonable effort." Id. As for the district court's proposed system of publication notice, the Court of Appeals declared that a "farce," considering the widespread, diverse nature of the class and the relatively limited scope of the first round of publication. Id. at 1017. In support of this conclusion, the Court cited the views of "lawyers specializing in class actions," who had "stated that the only effective way to induce any reasonable number of members of the class to file claims is to conduct full-scale campaigns on TV and radio, solicit appearances by advocates of consumers' rights such as Ralph Nader," and obtain "coverage in various news media, union newsletters, and the like." Id. But cf. Mullane v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950) (notice by publication is constitutionally sufficient as to trust beneficiaries whose names and addresses are unknown).
Although the Court of Appeals' primary concern was the district court's failure to provide for individual notice—a ruling which it held "alone compel[led] a reversal of the order appealed from and the dismissal of the case as a class action," Eisen, 479 F.2d at 1015—the court reserved its
While the broadest possible reading of Eisen would bar all applications of fluid recovery in non-settled cases, such a reading is not justified. See Jones v. Nat'l Distillers, 56 F.Supp.2d 355, 357 (S.D.N.Y. 1999) (concluding that Eisen does not forbid all fluid recoveries), discussed infra; cf. Developments in the Law—Class Actions, 89 Harv. L.Rev. 1454, 1532-35 (1976) (arguing that the Eisen court's reasoning does not fully justify the broad conclusion it appears to have reached). But see Six Mexican Workers v. Arizona Citrus Growers, 904 F.2d 1301, 1305 (9th Cir.1990) (reading Eisen as a wholesale rejection of fluid recovery); Windham, 565 F.2d at 72 (same); Reader, 110 Ariz. at 116, 515 P.2d 860 (same).
First, the Eisen court did not make clear the foundation for its objections to fluid recovery. See Cicelski v. Sears, Roebuck & Co., 132 Mich.App. 298, 306, 348 N.W.2d 685 (Ct.App.1984) ("[T]he statement by the Grigg Court that it found Eisen's reasoning persuasive is mysterious because the Eisen Court did not explain why it found fluid recovery offensive to due process."). While the Court of Appeals declared that fluid recovery would alter substantive rights in violation of the Rules Enabling Act, Eisen, 479 F.2d at 1014, and was a "violation of the requirement of due process of law," id. at 1018, the court did not explain its reasoning on either of these points. Insofar as grounds for the appellate court's objection can be discerned, it appears to rest on its belief that the district court saw fluid recovery in part as a way to dispense with individualized notice, id. at 1010, and on the court's conclusion, described below, that the specific means of recovery to be employed in the case would benefit no more than a few of the 6,000,000 estimated class members. Id. at 1010-11. Neither of these concerns, however, will be present in all fluid recoveries and neither serves as justification for declaring all fluid recovery "illegal." Nor did the majority opinion support its use of the pejoratives "inadmissible," "wholly improper," and "fantastic." The opinion was not in the highest intellectual tradition of the Second Circuit Court of Appeals.
Second, it is unclear what exactly the majority of the Court of Appeals panel thought they were barring when they condemned the use of "fluid recovery." The fluid recovery plan proposed by the district court involved both the classwide calculation
This discussion, combined with the Court of Appeals' initial expression of reluctance to allow the suit to proceed if the class members would not share in the damages, Eisen, 391 F.2d at 567, has led at least one commentator to conclude that, while the Eisen decision may have foreclosed the use of at least some fluid distribution schemes, it did not necessarily bar classwide calculation of damages. Developments in the Law—Class Action, 89 Harv. L.Rev. 1454, 1535 (1976). But see Dumas v. Albers Med., No. 03-0640-CW-GAF, 2005 WL 2172030, at *7 (W.D.Mo. Sept. 7, 2005) (reading Eisen as rejecting aggregate damage calculation but allowing fluid distribution in appropriate cases). At the same time, however, courts in the Second Circuit have shown themselves open to the application of fluid distribution in decided as well as settled cases, casting doubt on any interpretation of Eisen that would completely prohibit such remedies. See, e.g., In re Agent Orange Prod. Liab. Litig., 818 F.2d 179, 185 (2d Cir.1987) (distinguishing the distribution approved in Agent Orange from the distribution in Eisen in part based on the fact that the Agent Orange distribution would more narrowly target the injured class); Jones, 56 F.Supp.2d at 357.
Third, while the Court of Appeals distinguished Pfizer on the grounds that Pfizer involved a settlement fund and was thus "a consensual affair made possible by the agreement of the parties," Eisen, 479 F.2d at 1012, this distinction appears insufficient, considering the District Court for the Southern District of New York's class certification order in the Antibiotic Cases. See Antibiotic Antitrust Actions, 333 F.Supp. at 281-83. As noted above, when the Court of Appeals for the Second Circuit was given an opportunity to foreclose the district court's application of a fluid recovery scheme, it not only declined to do so—denying both the defendants' motion for a writ of mandamus and their motion for rehearing—but also expressed its confidence that the district court's plan would not impinge on the defendants' due process rights. Pfizer v. Lord, 449 F.2d at 119. Far from finding that fluid recovery was acceptable only in settled cases, the Court of Appeals in fact opined that "if anything," fluid recovery would present less of a due process problem in the litigated Antibotic Cases than in the Pfizer settlement. Id.
As already noted, the Supreme Court granted certiorari in the second Eisen appeal. While vacating the Second Circuit Court of Appeals' decision, the Court agreed that the case should be dismissed as a class action on the grounds that the district court's decision regarding individual notice failed to comply with the notice requirements of Rule 23(c)(2). Eisen v. Carlisle & Jacquelin, 417 U.S. 156, 173-77, 94 S.Ct. 2140, 40 L.Ed.2d 732 (1974). The Supreme Court noted the Court of Appeals' discussion of fluid recovery, but did not reach the issue, since it—like the
Post-Eisen caselaw on fluid recovery has been mixed. At least two Second Circuit cases have nominally relied on Eisen to reject the application of fluid recovery in non-settled cases. In Van Gernert v. Boeing Co., 553 F.2d 812 (2d Cir.1977), aff'd on other grounds, 444 U.S. 472, 100 S.Ct. 745, 62 L.Ed.2d 676 (1980), the Second Circuit Court of Appeals rejected the appellants' request to distribute the unclaimed residue of a class recovery pro rata to those class members who had filed proof of claims. Id. at 815-16. Stating that it saw "no reason to change . . . [its] position, firmly stated in Eisen v. Carlisle & Jacquelin, disallowing a fluid class recovery," the Court of Appeals concluded that the distribution proposed in Van Gernert had "even less to recommend" it than that in Eisen: "This method expressly contemplates that silent class members will not receive any compensation, even indirectly. The claims of the silent class members would be expropriated and a windfall might result for those who appear and collect their share of the damages." Id. at 815-16 (internal citations omitted). The Court was not apparently concerned about the windfall to the defendant which would be permitted to retain its possibly ill-gotten gains.
In Abrams v. Interco Inc., 719 F.2d 23 (2d Cir.1983), the Second Circuit Court of Appeals affirmed the District Court for the Southern District of New York's denial of class certification in a private antitrust action alleging that Interco, a manufacturer of footwear and apparel, had engaged in illegal price-fixing. Id. at 28-32. The district court's denial was based on the fact that common questions would not predominate over individual ones: the suit involved numerous Interco stores and dealers, "scores of different products," and "varying local market conditions." Id. at 31. In affirming the district court's decision, the Court of Appeals pointed to the numerous individual issues of fact involved in damage determination and distribution, observing that the only way that had been suggested to avoid these issues, "fluid class recovery," had "not found favor in this circuit." Id.
In both Van Gemert and Abrams the Second Circuit Court of Appeals took a step back from its strongest statements in Eisen. While the Van Gemert court rejected the use of fluid recovery, the court expressly withheld a decision on its constitutionality, simply holding that "the circumstances here . . . do not call for this extraordinary remedy." Van Gemert, 553 F.2d at 816. Likewise, while the Abrams court expressed concerns about the numerous individual issues present in the case before it, it also made clear that it was not going so far as to hold that "in order to support damage recovery by a nationwide class plaintiffs would be obligated to show conduct by Interco violating [the law] with respect to each of its 3500 dealers." Abrams, 719 F.2d at 29-30.
Fluid recovery continues to be widely used in the settlement context. See, e.g., Beecher v. Able, 575 F.2d 1010 (2d Cir.
In Agent Orange, the District Court for the Eastern District of New York approved a 180 million dollar settlement ($300 million) in a class action brought by Vietnam veterans and their families against seven chemical companies for injuries believed to be caused by exposure to Agent Orange and related phenoxy herbicides. Agent Orange, 611 F.Supp. at 1400. The court found that implementation of any distribution plan based on "traditional tort principles" was "impossible because of a virtual absence of proof of causation, financially impracticable because of administrative costs, and not feasible for other compelling reasons." Id. at 1402-03. Although the settlement fund was large, it was not large enough to provide a meaningful individual award for every class member; distribution of thousands of small individual payments would have "trivialize[d] the beneficial impact of the settlement fund on the needs of the class." Id. at 1431. As a result, a fluid distribution was required.
Individual awards were reserved for exposed veterans who suffered from total disabilities and the surviving spouses and children of exposed veterans who had died. Id. at 1410-11. In order to claim their awards, these class members were required to present some evidence of possible exposure to Agent Orange, but did not have to show that the disability or death had resulted from exposure. Although clearly unrelated injuries—such as those caused predominately by trauma—would not be compensated, all other cases of total disability or death would qualify for individual awards. Id. at 1412. The remainder of the settlement was earmarked for a "class assistance foundation" that would "fund projects and services that will benefit the entire class." Id. at 1432. Because the foundation would "direct the spending of a large pool of money to fund services," the court found that it would have a much "greater impact on the problems of the class than if thousands of small, individual payments were made." Id. Although expressing a few concerns about the court's control over the class assistance foundation, the Court of Appeals affirmed the district court's plan for distribution of the settlement. See Agent Orange, 818 F.2d at 183-86. See also In re Agent Orange Prod. Liab. Litig., 689 F.Supp. 1250, 1269-70 (on remand, altering settlement to involve "class assistance program" rather than "class assistance foundation" and increasing control over distribution in response to the Court of Appeals' concerns); Peter G. Schuck, Agent Orange on Trial, Mass Toxic Disasters in the Courts 206-22, 299 ff. (enlarged ed.1987) (fluid recovery for children and spouses of veterans of Vietnam war).
Similarly, in County of Suffolk v. Long Island Lighting Co., the District Court for the Eastern District of New York approved a settlement in a series of complex civil RICO suits arising out of the construction of the Shoreham atomic energy plant on Long Island. The settlement provided for compensation to current rate-payers of the defendant utility through a ten-year rate reduction scheme, see id. at 1456-57, and to former ratepayers through a proof of claim procedure. See Long Island Lighting Co., 710 F.Supp. at 1457. Some of the current ratepayers who benefited from the rate reduction had never
The Court of Appeals affirmed the district court's approval of the settlement in Long Island Lighting Co. See County of Suffolk v. Long Island Lighting Co., 907 F.2d 1295 (2d Cir.1990). It also found unobjectionable the later cy pres distribution of the unclaimed portion of the fund. See County of Suffolk v. Stone & Webster Eng'g Corp., 106 F.3d 1112 (2d Cir.1997).
The fact that fluid recovery has been so widely used in settled cases—and that its use has been repeatedly affirmed by appellate courts throughout the country, including the Court of Appeals for the Second Circuit—is important evidence of the continued necessity of fluid recovery in this country and Circuit. See, e.g., Beecher, 575 F.2d 1010; Long Island Lighting Co., 907 F.2d 1295; Agent Orange, 818 F.2d 179. While courts have particularly "broad supervisory powers over the administration of class-action settlements," Beecher, 575 F.2d at 1016, settlements do not stand separate and apart from decisional law. Settlements represent the view of industry, consumers, and the legal profession of what is necessary and desirable in mass consumer cases. It is entirely appropriate for courts to reflect this practice and to respect the modes used by private litigants in disposing of mass actions through aggregation and fluid recovery. See generally Samuel Issacharoff & John Fabian Witt, The Inevitability of Aggregate Settlement: An Institutional Account of American Tort Law, 57 Vand. L.Rev. 1571 (2004).
The courts' approach to fluid recovery in many of the post-Eisen settled cases suggests a continued willingness to apply fluid recovery beyond the settlement realm. In Jones v. National Distillers, a securities fraud class action, the District Court for the Southern District of New York approved a proposed donation of settlement residue to the Legal Aid Society. Jones, 56 F.Supp.2d at 356. Noting that the Court of Appeals for the Second Circuit had "cautioned . . . against a 'fluid recovery' scheme that creates a class fund but deviates too much from principled individual damage calculations and pro rata distributions to class members," the district court nevertheless concluded that "Eisen does not forbid all fluid recoveries based on cy pres principles; it only cautions against going to excess in creating class funds that do not meaningfully benefit the class as a whole." Id. at 357. Likewise, while the Second Circuit Court of Appeals' approval of fluid distribution in the Agent Orange settlement was based in part on the fact that it was a settlement, the Court also found comfort in the fact that the distribution in that case, unlike the distributions in Eisen and Van Gemert, would benefit a class "essentially equivalent" to the class that claimed injury. Agent Orange, 818 F.2d at 185. According to the Court of Appeals, the distribution plan adopted by the district court "simply lack[ed] the sort of 'fluidity' between the class claiming injury and the class receiving recovery that existed in Eisen and Van Gernert." Id.
3. Application of Law to Facts
The plaintiffs' proposed use of fluid recovery in this case would effectuate
While the class members' estimated individual damages are significantly higher than those in Eisen, they are still low enough to make individual lawsuits cost-prohibitive. If the members of this class are to have a fair chance of receiving compensation for their alleged economic injuries—and if they are to hold responsible those corporations whose deliberate actions allegedly caused those injuries—they must make use of the Rule 23(b)(3) class action device. And, as in many large-scale consumer class actions, classwide damage determination and fluid distribution are necessary in order to effectively and fairly administer this litigation. Given the size of plaintiffs' purported class and the nature of the purchases involved—cigarettes are, like many other consumer products, relatively inexpensive and repeatedly consumed and replaced—"traditional methods of proof [may not be] worthwhile." California v. Levi Strauss & Co., 41 Cal.3d 460, 472, 224 Cal.Rptr. 605, 715 P.2d 564 (1986). If plaintiffs' allegations regarding the defendants' actions are proved, then to "allow the defendant[s] to insist upon proof of individual claims [would] enable [them] to benefit from the cumbersome nature of legal proceedings and the lack of sophistication and indolence of the consumer," and would "reward [their] foresight in stealing from the multitude in small amounts." Bruno v. Superior Court, 127 Cal.App.3d 120, 127, 179 Cal.Rptr. 342 (1981).
The application of fluid recovery in this case does run the risk of overcompensating some and undercompensating other members of the class who relied differently on the "lights" designation and acted differently and for diverse reasons. In terms of damage calculation, these important factual issues can be resolved by a jury with the aid of experts and statistical proof. See Parts VII.D.1.a.ii, X.A, supra. In terms of distribution, concerns about over- and undercompensation may be at least partially allayed through requiring claimants to submit affidavits regarding their understanding of the health issues surrounding "light" cigarettes and their reliance on the "lights" descriptor in addition to information regarding their cigarette purchases. While a court must be alert to issues of due process and must not value efficiency over fairness to both parties, illegally injured plaintiffs should not be fobbed off on the basis of real and imagined management problems that can be circumvented in a fair adjudication.
a. Eisen and Van Gemert
Considering the Court of Appeals for the Second Circuit's failure to clarify or articulate the nature of its objections to fluid recovery, Eisen is best read as confined to its particular facts. The validity of this approach is confirmed by post-Eisen case law in the Second Circuit. See In re Agent Orange Prod. Liab. Litig., 818 F.2d 179, 185 (2d Cir.1987) (distinguishing the
Unlike the case in Eisen, fluid recovery will not serve in the case at bar as a means of dispensing with individual notice to identifiable class members. While individual notice is not practicable here, that impracticability stems not from concerns about its expense relative to the value of the estimated recovery, see Eisen v. Carlisle & Jacquelin, 41 F.R.D. 147, 151 (S.D.N.Y.1966), but rather from the fact that an appreciable number of the class members cannot be identified in advance. The plaintiffs' proposed plan of widespread paid media notice is the "best notice practicable under the circumstances," Fed. R.Civ.P. 23(c)(2), and is therefore consonant with the requirements of both Rule 23 and the due process clause. See, e.g., Mullane v. Cent. Hanover, 339 U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 (1950).
More importantly, the class members in this case are in fact "likely . . . to share in an eventual judgment," as opposed to those in Eisen. Eisen v. Carlisle & Jacquelin, 391 F.2d 555, 567 (2d Cir.1968). In Eisen, very few members of the class were expected to come forward to claim their share of the total damages, and the Court of Appeals thought it likely that many of the class members would receive no benefit at all from the recovery, while many new traders who were not members of the class would receive some benefit from the proposed reduction in trading costs. Eisen, 479 F.2d at 1010-11. Although class members' estimated recoveries in the present case may be too low to justify the cost of individual litigation, they are significantly higher than the average damage claim of three dollars and ninety cents predicted in Eisen. Id. at 1010. As a result, a large number of class members can be expected to come forward to claim damages. Furthermore, while there are legitimate concerns about over and undercompensation of class members because of individual reliance on the defendants' alleged misrepresentation, these concerns can be dealt with through requiring the kind of affidavit from claimants described above.
For much the same reason, the fluid distribution proposed in the present case does not run afoul of the Court of Appeals' decision in Van Gemert. In Van Gemert, class members who had already received their share of a total damage recovery requested that the court allow distribution of the unclaimed residue to them on a per capita basis. Van Gemert, 553 F.2d at 815. The Second Circuit Court of Appeals rejected this as an impermissible "windfall" to the claiming plaintiffs and an "expropriation" of the claims of the silent class members, who would receive no benefit at all from the distribution. Id. at 816. In the present case, no such windfall will occur. Damages can be distributed to claiming class members on the basis of the number of "light" cigarettes purchased in the relevant geographic locations during the relevant time period. The residue—if any—can be distributed on the basis of cy pres principles to be determined at a later time.
b. Due process and Seventh Amendment issues
The plaintiffs' proposed use of fluid recovery would not deprive the defendants
Aggregate determination of the plaintiff class' damages would provide adequate protection. In an aggregate determination, defendants would be able to challenge the plaintiffs' offers of proof regarding the extent of reliance by class members and the amount of their economic damages. If the jury does not find that the plaintiffs have proved the economic damages they allege the defendants caused them, the defendants will not be held liable. And if defendants are held liable, they will, as required by federal substantive law, be held liable for no more than treble the amount of the economic damages proved to have been caused by their actions. The fact that the proof is on a classwide rather than individual basis would not change this result. See Antibiotic Antitrust Actions, 333 F.Supp. at 288-89; see also In re Agent Orange Prod. Liab. Litig., 597 F.Supp. 740, 839 (E.D.N.Y.1984) ("No matter what system is used the purpose is to hold a defendant liable for no more than the aggregate loss fairly attributable to its . . . conduct. As long as that goal is met a defendant can have no valid objection that its rights have been violated.").
Fluid distribution poses no due process or Seventh Amendment concerns. As the California Court of Appeals persuasively explained in Bruno, "a class action which affords due process of law . . . through the time when the amount of [the defendant's] liability is calculated cannot suddenly deprive him of his constitutional rights because of the way the damages are distributed." Bruno, 127 Cal.App.3d at 129, 179 Cal.Rptr. 342. If the defendants are held liable to the plaintiffs, they will be held liable only to extent of the "aggregate loss fairly attributable to their . . . conduct." Agent Orange, 597 F.Supp. at 839. The method by which the damages are then distributed has no bearing on the defendants' constitutional rights.
c. Rules Enabling Act
The plaintiffs' proposed use of fluid recovery would not alter the substantive requirements of RICO, and would not, therefore, violate the Rules Enabling Act. See 28 U.S.C. § 2072(b) (2000) (general rules of practice and procedure promulgated by the Supreme Court "shall not abridge, enlarge or modify any substantive right"). Under the civil RICO statute, the plaintiffs are required to prove "(1) conduct (2) of an enterprise (3) through a pattern (4) of racketeering activity." Sedima, 473 U.S. at 496, 105 S.Ct. 3275. In addition, plaintiffs must prove that they have been injured in their "business or property by the conduct constituting the violation." Id. Although the actual probative force of the plaintiffs' proposed classwide proof remains to be determined at trial, these elements are not inherently less provable on a classwide than on an individual basis, and the plaintiff class will be held to exactly the same standard of proof as in individual trials. See Note, Managing the Large Class Action, 87 Harv. L.Rev. at 448-49.
A question under the Rules Enabling Act is posed by the danger of overcompensation inherent in the plaintiffs' fluid distribution plan. It is possible that some claimants will benefit from the plaintiff class' recovery despite the fact that they did not rely on defendants' alleged misrepresentations regarding "light" cigarettes and were not, therefore, injured in their business or property by defendants' actions. See Metromedia v. Fugazy, 983 F.2d 350, 368 (2d Cir.1992) (in the context of an alleged RICO predicate act of mail fraud, requiring proof of reliance in order to establish the necessary causal connection between the defendant's actions and the plaintiffs injury). The risk of such overcompensation can be limited by requiring proof through claim forms from claimants concerning the extent of their reliance during the distribution stage.
Ultimately, the risk of some overcompensation cannot be determinative. It is the large scale of the defendants' alleged fraud that makes fluid recovery necessary to fully effectuate the substantive law in this case. It would be paradoxical if civil RICO—a law which was enacted by Congress both to compensate victims and to increase enforcement of federal laws against organizations acting illegally could not be applied precisely where defendants' fraud caused the broadest harm. See, e.g., Rotella, 528 U.S. at 557, 120 S.Ct. 1075; Malley-Duff & Associates, Inc., 483 U.S. at 151, 107 S.Ct. 2759; Sedima, 473 U.S. at 493, 105 S.Ct. 3275.
RICO's "policy of compensation is . . . better advanced" by the use of a fluid distribution in this case than by "permitting the defendant[s] to retain profits that [they] procured in violation of the substantive statute[ ] from which the policy derives." Natalie A. DeJarlais, Note, The Consumer Trust Fund: A Cy Pres Solution to Undistributed Funds in Consumer Class Actions, 38 Hastings L.J. 729, 745 (1987). The fact that a relatively few uninjured individuals may also benefit from that distribution "should no more make such relief improper than does the fact that third parties may benefit from injunctions make that relief improper." See Note, Managing the Large Class Action: Eisen v. Carlisle & Jacquelin, 87 Harv. L.Rev. 426, 450 (1973); see also Newberg on Class Actions § 10:22 (4th ed. 2002) ("To the extent that cy pres distribution actually benefits a sufficient number of injured class members, the monies paid to third parties are an incidental but necessary cost that must be accepted in order to confer the benefits in a feasible way to a large proportion of the injured class members.").
4. Conclusion on Fluid Recovery
The use of fluid recovery is appropriate in the instant case. It alone does not merit denial of certification and dismissal. The detailed methods of fixing damages and distribution, if necessary, will be left to determination after a jury verdict.
Total damage computation is covered in Part III.D, supra. Distribution among
1. National Common Law
This litigation requires application of federal substantive RICO law and with it federal statutes covering mail and wire fraud. See Part III, supra. Federal law of damages controls. If no legislation covers the matter, common law principles developed by the court apply. See McDermott, Inc. v. AmClyde, 511 U.S. 202, 207, 114 S.Ct. 1461, 128 L.Ed.2d 148 (1994) (formulating a rule for damage division where "none of th[e applicable substantive] statutes provides us with any policy guidance or imposes any limit on our authority to fashion the rule that will best answer the question presented by this case"). See also, e.g., Richard H. Fallon, Jr., Daniel J. Meltzer & David L. Shapiro, Hart and Wechsler's The Federal Courts and The Federal System 72 (2006 Supplement) (federal courts formulating rules of decision not clearly specified by statute "typically turn to the general common law, canvassing the law of multiple jurisdictions, in seeking guidance for the particular rule"); Jay Tidmarsh & Brian J. Murray, A Theory of Federal Common Law, 100 Nw. U.L.Rev. 585 (2006); Caleb Nelson, The Persistence of General Law, 106 Colum. L.Rev. 503 (2006).
McDermott was a case in admiralty. Its holding in this federal substantive area controlled only damages in admiralty cases. Nevertheless, Justice Stevens' opinion for the court considers competing modern available rules. See id. at 211-17, 114 S.Ct. 1461 (considering in detail the "consistency with the [binding federal maritime law], promotion of settlement, and judicial economy" promoted by three possible approaches to damages division). It adopts an equitable rule for locating responsibility and dividing damages among defendants by relative fault. See id. at 208, 114 S.Ct. 1461 (the equitable rule serves "the interest in fairness promoted by the proportionate fault rule").
Since it is assumed for the purposes of this discussion that none of the defendants will settle, the complex rules for crediting non-settling defendants on a pro tanto or other basis for any prior settlement need not be considered. What is clear from McDermott is that, where there is no definite statutory or case law rule for dividing damages among defendants, the courts must provide the rule in the common law tradition. There are a large number of possible ways of dealing with the issue. Two main ones, joint and several liability and market share, are covered below.
2. Joint and Several Liability
Joint and several liability is the traditional rule that would apply. It is based upon the concept that all who participate in a single conspiracy are individually liable for the harm done by any or all of the conspirators while attempting to meet its goals. Application of this approach would permit plaintiffs as a class to collect all damages assessed against all defendants from any one or more of the defendants arbitrarily chosen by the class attorneys. See Restatement (Third) of Torts, Apportionment of Liability § 10 ("[T]he injured person may . . . recover the full amount of recoverable damages from any jointly and severally liable person."). Theoretically, the least culpable might then be forced to shoulder the largest burden, an inequitable result. Nevertheless, authority supports this rule.
Every Court of Appeals that has addressed the issue has found that both civil and criminal RICO offenses require imposition of joint and several liability. See United States v. Corrado, 227 F.3d 543, 553 (6th Cir.2000) (finding that "joint and several liability is not only consistent with the statutory scheme [of RICO] but in some cases will be necessary to achieve the aims of the legislation" because the "entire scheme would not have succeeded without the support of [the] enterprise"); United States v. Infelise, 159 F.3d 300 (7th Cir. 1998) (co-defendants were correctly held jointly and severally liable); Beneficial Standard Life Ins. Co. v. Madariaga, 851 F.2d 271 (9th Cir.1988) (civil RICO liability assessed jointly and severally). See also Kashi v. Gratsos, 790 F.2d 1050, 1054-55 (2d Cir.1986) (under New York state common law, "[p]roof of a civil conspiracy . connects a defendant with the transaction and charges him with the acts and declarations of his co-conspirators and exposes that defendant to joint and several liability for the victim's losses") (internal citations, quotation marks, and alterations omitted). See also Restatement (Third) of Torts, Apportionment of Liability § A18.
While the Court of Appeals for the Second Circuit has not yet ruled on the issue in the context of civil RICO, it has affirmed at least one district court judgment holding civil RICO defendants jointly and severally liable. See Abou-Khadra v. Mahshie, 4 F.3d 1071, 1073 n. 1 (2d Cir. 1993) (noting joint and several liability).
Equity does not support joint and several liability in the context of the instant case for reasons described in McDermott. Since the Court of Appeals for the Second Circuit has not addressed the matter, it is appropriate to consider alternate approaches.
3. Market Share
A market share approach provides a relatively simple method of assessing damages on the basis of proportionate fault, the modern equitable doctrine adopted by McDermott. This is the basic approach taken in the diethylstilbestrol (DES) cases, the Agent Orange cases, many asbestos matters, the Blue Cross cigarette case, and in most structured settlements where a number of defendants may have contributed to the injuries of one person or a group. See, e.g., Paul D. Rheingold, Mass Tort Litigation § 10:9 (1996); Monograph, Individualized Justice in Mass Tort Litigation, passim (1995); Aaron D. Twerski, Market Share—A Tale of Two Centuries, 55 Brook. L.Rev. 869 (1989) (approving market share in DES cases, but raising problems in broader applications); Symposium,
The DES cases provide a good example. See, e.g., Sindell v. Abbott Labs., 26 Cal.3d 588, 163 Cal.Rptr. 132, 607 P.2d 924 (Cal.), cert. denied, 449 U.S. 912, 101 S.Ct. 285, 66 L.Ed.2d 140 (1980); Hymowitz v. Eli Lilly & Co., 73 N.Y.2d 487, 541 N.Y.S.2d 941, 539 N.E.2d 1069 (N.Y.), cert. denied, 493 U.S. 944, 110 S.Ct. 350, 107 L.Ed.2d 338 (1989); In re DES Cases, 789 F.Supp. 552 (E.D.N.Y.1992). Though the cases were brought by individuals rather than a class, the rule of damages, in effect, treated all plaintiffs as a class and all defendants as a class in arriving at a substantive solution. Market share was the basis for dividing damages among defendants. Individual cases were tried to determine cause and damages, with almost all ultimately being settled on a matrix basis with the aid of a special master appointed by this court. The DES analogy is particularly useful in the present' case, since market share changed slightly over the years in DES, as it did with cigarettes.
The Blue Cross cigarette case involved only one plaintiff, a health insurer, on one side, and many cigarette manufacturers on the other. See Blue Cross, 178 F.Supp.2d 198 (E.D.N.Y.2001), rev'd on other grounds, 344 F.3d 211 (2d Cir.2003) and 393 F.3d 312 (2d Cir.2004), Appendix B, infra. Yet Blue Cross was a suit by the insurer on behalf of each of its many subscriber-smokers whose cigarette habit caused medical problems. In effect, there was, as in the present case, a large body of smokers pitted against the cigarette industry. The verdict form required the jury to attribute a portion of total damages to each defendant based on approximations of market share, and it did so.
The Agent Orange case was settled. See, e.g., In re Agent Orange Prod. Liab. Litig., 818 F.2d 145 (2d Cir.1987). Damages for the entire potential class of millions of members of the armed forces were divided among defendants based on market share modified to take account of the variations in estimated percentages of dioxin in each manufacturer's product. See, e.g., Peter H. Schuck, Agent Orange on Trial: Mass Toxic Disasters in the Courts 86 (enlarged ed.1987). In the present case, since the medical damage caused by "light" cigarettes is not at issue (as dioxin potency and its alleged health effects was in Agent Orange) a simple market share of "light" cigarettes sold in applicable geographic areas, imputed year by year during the liability period and summed up, would suffice.
In many of the Brooklyn asbestos cases tried on a consolidated basis, the juries dealt with plaintiffs who could not prove which of many manufacturers' asbestos they had inhaled while constructing ships during World War II. In effect, the jury assessed responsibility for asbestos-caused illnesses on the percentage of each defendant's product supplied during the construction of ships on which each plaintiff worked. See In re E. & S. Dists. Asbestos Litig., 772 F.Supp. 1380 (1991). The jury verdicts in scores of trial cases were then used in providing settlement matrices for thousands of other cases with the help of a settlement master. But cf. Rheingold, Mass Tort Litigation § 10:10 (victims have had less success with market share in asbestos and other product suits than in the DES cases).
Market share apportionment is a rule tested before juries and in extensive settlements. It comports with McDermott and
311 U.S. at 207-08, 61 S.Ct. 204. This rationale is applicable to the present case, where degree of fault is equivalent to percentage of market share of "light" cigarettes.
4. Other Systems
Variations on the above methods, particularly where some defendants settle, may be proposed by the parties. See Restatement (Third) of Torts, Apportionment of Liability, passim. The complex problems of proof which would be presented by some of the variations make the simplest solution preferable. For example, the factors the Restatement suggests for assigning shares of responsibility include:
Id. § 8. In the instant case, involving a single conspiracy, it is easier and more in accord with both law and equity to assume the risk-creating conduct and the strength of causal connections are proportionate to market share in developing a particular substantive rule of damages.
Section 1292(b) of title 18 of the United States Code provides that a district court judge may certify an order that is "not otherwise appealable" if the judge is "of the opinion that such order involves [1] a controlling question of law [2] as to which there is a substantial ground for difference of opinion and [3] that an immediate appeal from the order may materially advance the ultimate termination of the litigation. . . ." 18 U.S.C. § 1292(b). Absent certification, an order denying summary judgment is not appealable. See Sira v. Morton, 380 F.3d 57, 66 (2d Cir. 2004) ("It is settled law that a denial of summary judgment is ordinarily not a final judgment from which an appeal will lie.").
The Court of Appeals for the Second Circuit has repeatedly counseled that certification under Section 1292(b) should be sparingly granted. See, e.g., Flor v. BOT Fin. Corp., 79 F.3d 281, 284 (2d Cir.1996) (Section 1292(b) certification should be "strictly limited"); Westwood Pharms., Inc. v. Nat'l Fuel Gas Distrib., 964 F.2d 85, 89 (2d Cir.1992) ("[W]e urge the district
An appeal here would not satisfy the criteria required for certification under section 1292(b). As already noted, the difficulties in this case lie with the sufficiency of plaintiffs' proof, not with their legal theory. The "controlling questions" emphasized by defendants are the ability of plaintiffs to muster satisfactory proofs of causation, injury, and damages. These questions are resolved for the present by the conclusion that plaintiffs have proffered sufficient admissible expert and other evidence to survive summary judgment. Appellate review of qualification of experts under Daubert are highly deferential. See Amorgianos, 303 F.3d at 264 ("We review a district court's determination to admit or exclude expert testimony under Daubert for abuse of discretion.").
The probability that an interlocutory appeal would require lengthy appellate consideration and the likelihood that continued district court proceedings without appeal might moot the issues also counsel against 1292(b) certification. See Note, Interlocutory Appeals in the Federal Courts Under 28 U.S.C. 1292(b), 88 Harv. L.Rev. 607, 614 (1975) ("The district court's familiarity with the record and the original order permits it to screen applications for appeal with little additional effort and puts it in the best position to determine whether an appeal will further the goal of efficiency [behind Section 1292(b) ]."). In short, an appeal at this time likely would not lessen "the total burdens of litigation on the parties and the judicial system" and thus would not materially advance the ultimate termination of the litigation. See TCF Banking and Says., F.A. v. Arthur Young & Co., 697 F.Supp. 362, 366 (D.Minn.1988) ("Section 1292(b) is designed to allow for sparing exceptions to the final judgment rule when interlocutory appeal can minimize the total burdens of litigation on the parties and the judicial system.'"). The enormous record would seriously add to the burdens of the Court of Appeals for the Second Circuit without adequate justification.
Should the Court of Appeals under Rule 23(f) of the Federal Rules of Civil Procedure accept an interlocutory appeal from the decision to certify the class it will, in effect, be deciding the case, leaving unnecessary a separate certification under section 1292(b). Denial of certification will sound the death knell of this suit.
Because an interlocutory appeal of the denial of summary judgment is not certified, a stay of proceedings is not appropriate. The Court of Appeals may grant a stay if it takes an appeal under Rule 23(f) of the Federal Rules of Civil Procedure.
Defendants have a right to seek an appeal of the class certification order under Rule 23(f); the Court of Appeals "may in its discretion permit [the] appeal . . . if application is made to it within ten days after entry of the order. An appeal does not stay proceedings in the district court unless the district judge or the court of appeals so orders." Fed.R.Civ.P. 23(f) (emphasis supplied).
This suit has been pending for almost two and a half years. Discovery is essentially complete. Legal questions antecedent to trial have been resolved. Further delay would run afoul of the first mandate of the Federal Rules of Civil Procedure: the courts shall "secure the just, speedy, and inexpensive determination of every action." Fed.R.Civ.P. 1 (emphasis supplied).
Jury selection is set for January 22, 2007, with trial to begin immediately
The class is certified as follows:
At or before the October 30 meeting, plaintiffs must inform the court and defendants if they intend to amend their pleadings to seek damages up to the time of trial instead of, as is now the case, up to the time of filing the complaint. See Fed. R.Civ.P. 15(a) (amendments permitted "by leave of court"). After trial has begun, amendments to conform to the evidence, id. 15(b); relation back of amendments, id., 15(c); and supplemental pleadings, id., 15(d), will be strongly discouraged. Nevertheless, subject to notice requirements, the court will entertain a motion to extend the class to, for example, encompass smokers of all "low tar" brands rather than "lights" alone, if that would assist the parties in negotiating a global settlement of all excess price claims.
Defendants' motion to dismiss claims for equitable relief is granted. All other motions for summary judgment are denied.
No interlocutory appeal is certified. No stay is imposed.
SO ORDERED.
APPENDIX A
Excerpts from United States v. Philip Morris USA. Inc., et al., 449 F.Supp.2d 1 (D.D.C.2006), 2006 WL 2380622, 2006 WL 2380648, 2006 WL 2380632, 2006 WL 2381449, 2006 WL 2380650 and 2006 WL 2380681 (D.D.C. Aug. 17, 2006).
[Ed. Note: Since this appendix is available on Westlaw and in the Federal Supplement, it has been deleted here for purposes of publication.]
APPENDIX B
Excerpts from Blue Cross & Blue Shield of New Jersey, Inc. v. Philip Morris, Inc., et al., 178 F.Supp.2d 198 (E.D.N.Y.2001), rev'd on other grounds, 344 F.3d 211 (2d Cir.2003) and 393 F.3d 312 (2d Cir.2004).
[This opinion was issued after a full trial in which the jury found damages against defendants. The discussion which follows resulted in a denial of defendants' motion to overturn the verdict.]
[178 F.Supp.2d at 208]
[Ed. Note: Since this appendix is available on Westlaw and in the Federal Supplement,
APPENDIX C
Findings of fact in Price v. Philip Morris, No. 00-L-112, 2003 WL 22597608 (Ill. Cir. Mar. 21, 2003), rev'd on other grounds, 219 Ill.2d 182, 302 Ill.Dec. 1, 848 N.E.2d 1 (Ill.2005) (suit barred by provision of state statute).
[The findings of fact and law in this opinion were made' by the presiding judge after a full non-jury trial.]
1. . . . Specifically, the Court finds that the Class is defined as follows:
Excluded from the Class is Defendant, any parent, subsidiary, affiliate, or controlled person of Defendant, as well as the officers, directors, agents, servants, or employees of Defendant, and the immediate family members of such persons. Also excluded is any trial judge who may preside over this case.
2. This Class Action is brought pursuant to the Illinois Consumer Fraud and Deceptive Business Practices Act, 815 ILCS 505/_et seq. ("Illinois Consumer Fraud Act"). Based upon the findings and conclusions herein, the. Court finds that Defendant Philip Morris has violated the Illinois Consumer Fraud Act (815 ILCS 505/2) and the Uniform Deceptive Trade Practices Act (815 ILCS § 510/2). As a direct and proximate result of Defendant's violation of these statutes, Plaintiffs and the Class have suffered compensatory damages in the amount of $7.1005 Billion.
3. The trial in this case commenced on January 21, 2003 and continued through March 6, 2003. The findings contained within this Order are based upon the trial testimony in this action and evidence admitted during trial.
4. This Court has presided over this action since its inception and is familiar with the issues of fact and law it presents. The Court has heard, read and considered all of the admitted evidence and testimony pertinent to the Consumer Fraud Act Claims at issue in this case. The Court has had the opportunity to consider the documents and materials admitted into evidence and to observe the demeanor, evaluate the credibility and weigh the testimony of the parties' fact and opinion witnesses and the arguments of counsel.
5. The Court, after considering all of the evidence, the demeanor and the credibility of the witnesses, makes the overall observation that the expert and fact witnesses who testified for the Plaintiffs in this case were credible and reputable. Specifically, many of the experts who offered opinions on behalf of the Plaintiffs in this case are leaders in their scientific fields, and national leaders of the public health community. The Court did not find the expert and fact testimony of Philip Morris' witnesses to be as credible as the testimony of witnesses for the Plaintiffs in this case.
6. During the course of this trial, the Court allowed both parties latitude with respect to their offer of expert testimony based upon their disclosures of opinion testimony under Illinois Supreme Court Rule 213. Both parties were permitted to offer opinion testimony over opposing counsel's objection in this regard. Although the Court allowed this evidence into the record, the Court finds (as a matter of fact) that my rulings in this case would be unchanged in any respect in the
* * * * * *
10. Based upon the facts, testimony and evidence presented at trial, the Court first revisits its prior Certification Order entered on February 8, 2001.
Under 735 ILCS 5/2-801, a Class may be certified under Illinois Law if:
The Court finds that each of the prerequisites for the maintenance of a Class Action has been met.
11. With respect to numerosity, the Court finds Plaintiff have met their burden that the Class in this case includes over one million members and finds, based on the evidence introduced, that this Class is so numerous that joinder of all members is not only impracticable but virtually impossible. In addition, individual actions by each Class member would be impracticable.
12. Based upon the evidence introduced at trial, commonality has been demonstrated, because the claims of all Class members are based upon both common questions of law and fact which predominate over any questions affecting individual Class members. Miner v. Gillette Co., 87 Ill.2d 7, 56 Ill.Dec. 886, 428 N.E.2d 478 (1981). Philip Morris has engaged in a course of conduct that affects this Class in such a way tha