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September 7, 1999


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



Defendants moved to dismiss the complaints in these two cases on the theory that a decision in Laborers Local 17 Health & Benefit Fund v. Philip Morris, Inc., ("Laborers Local 17"), 191 F.3d 229 (2d Cir. 1999), superseding 172 F.3d 223 (2d Cir. 1999), blocks the plaintiffs' federal causes of action and requires dismissal of all state law claims. The motions were denied. See Preliminary Memorandum And Order, August 2, 1999. This memorandum and order explains that decision.

Laborers Local 17 held that the plaintiffs' injuries in that case were too remote — i.e., were not proximately caused — to support a cause of action under RICO. As observed in an opinion issued prior to Laborers Local 17, and as Laborers Local 17 itself recognized, the legal concept of proximate causation is a normative, flexible, and highly fact specific doctrine which requires individualized inquiry in each case. See Blue Cross & Blue Shield of N.J., Inc. v. Philip Morris, Inc., 36 F. Supp.2d 560, 579 (E.D.N.Y. 1999) ("This determination [of proximate cause] is primarily one of policy, requiring a highly flexible and case specific approach."); see also Laborers Local 17, 191 F.3d at 235 ("Proximate cause is an elusive concept, one `always to be determined on the facts of each case upon mixed considerations of logic, common sense, justice, policy and precedent.'" (quoting W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 42, at 279 (5th ed. 1984) (quoting 1 Street, Foundations of Legal Liability 110 (1906)))).

There are differences between the parties and circumstances in the present cases and those in Laborers Local 17 relevant to the proximate cause inquiry and providing grounds to distinguish the two litigations. Laborers Local 17 does not preclude the instant cases' complaints. Even if the plaintiffs' federal causes of action, as originally stated, are ultimately found to be barred by Laborers Local 17, neither of the present actions can be dismissed at the pleading stage. The plaintiffs in both cases have amended their complaints to state valid, alternative theories of liability.


A. Plaintiffs' Original Claims

Both cases involve claims by medical providers to be compensated for the economic injuries they have allegedly sustained as a result of the treatment of tobacco related illnesses. In both cases the defendants are the major tobacco manufacturers and related entities.

In Blue Cross & Blue Shield of New Jersey, Inc., et al. v. Philip Morris, Inc., et al. ("Blue Cross"), the plaintiffs are medical provider plans ("The Blues") claiming violations of both federal and state law. The federal causes of action are brought under the Racketeer Influenced and Corrupt Organizations Act (RICO) and anti-trust statutes. The pendent state law claims are asserted under various state statutes and under common law theories such as fraudulent misrepresentation, fraudulent concealment, breach of special duty, unjust enrichment, and conspiracy.

In The National Asbestos Workers Medical Fund, et al. v. Philip Morris, Inc., et al. ("National Asbestos"), the plaintiffs are self-insured ERISA trust funds which provide health care benefits to union workers in the building trades. The plaintiffs state claims under federal RICO and under federal common law on theories of unjust enrichment, restitution, indemnity, and breach of assumed duty. See Blue Cross, 36 F. Supp.2d 560 (E.D.N.Y. 1999) (setting out original allegations in detail); National Asbestos Workers Medical Fund v. Philip Morris, Inc., 23 F. Supp.2d 321 (E.D.N.Y. 1998).

B. Procedural Background

On October 19, 1998, defendants' Rule 12(b)(6) motion in National Asbestos was denied. See National Asbestos, 23 F. Supp.2d at 323. Given the expansive publlc policies of RICO, the comprehensive preemptive force of ERISA, and the conflicting decisions regarding the sufficiency of similar claims, a dismissal based on the pleading was inappropriate.

On March 30, 1999, the defendants' motion to dismiss in Blue Cross was denied. See Blue Cross, 36 F. Supp.2d at 564. The RICO allegations contained in the Blues' complaint were sufficiently consonant with Supreme Court precedent, modern tort law's conception of proximate causation, and the statutory design and policy of RICO to withstand a motion directed at the complaint.

Ten days after the Blue Cross opinion was issued and approximately six months after the National Asbestos opinion, the court of appeals of the Second Circuit decided an interlocutory appeal in a case involving RICO allegations against the tobacco industry by union trust fund-insurers. See Laborers Local 17 Health & Benefit Fund v. Philip Morris, Inc., 172 F.3d 223 (2d Cir. 1999), withdrawn and superseded by 191 F.3d 229 (2d Cir. 1999). The court in Laborers Local 17 found the claims of plaintiff trust funds to be compensated for tobacco related expenditures to be too "indirect." See id., 191 F.3d at 238-40. The defendants then renewed their motions to dismiss the complaints in both Blue Cross and National Asbestos on the grounds that both suits are controlled by Laborers Local 17.

C. Amendments To Plaintiffs' Original Complaints

In June 1999 plaintiffs in both Blue Cross and National Asbestos moved to amend their complaints to add new claims and to restate, in the alternative, the original federal and state claims under subrogation; they continued to press all their original claims. They were permitted to amend their complaints pursuant to the liberal standards of Rule 15 of the Federal Rules of Civil Procedure. Decision was reserved on whether the amended complaints stated valid causes of action.


A. "Direct" RICO

Defendants contend that Laborers Local 17 bars plaintiffs' original RICO claims. In contrast, plaintiffs argue that there are important factual and pleading distinctions between Laborers Local 17 and Blue Cross and National Asbestos which distinguish the cases.

1. Proximate Causation Generally

The legal concept of proximate causation mandates a multi-faceted and highly fact specific inquiry. Proximate cause analysis is driven by considerations of policy, fairness, and practicability, rather than by a rigid adherence to classifications or abstractions. The Supreme Court has pointed out that the proximate causation decision should be guided by a flexible, case-by-case approach. In Associated General Contractors v. California State Council of Carpenters, 459 U.S. 519, 536-37, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983), the Court stated:

  [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.
  Instead, previously decided cases identify factors
  that circumscribe and guide the exercise of judgment
  in deciding whether the law affords a remedy in
  specific circumstances.

In Holmes v. Securities Investor Protection Corp., 503 U.S. 258, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992), the Court reiterated the impropriety of black letter rules in a proximate cause context, adding, "our 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 opinion]." Id. at 272 n. 20, 112 S.Ct. 1311.

The formulation of rigid, simple rules for proximate cause is often inappropriate. The classification of claims and injuries into a priori categories such as "derivative" or "direct" is at times an exercise in obscuration. See, e.g., Blue Cross, 36 F. Supp.2d at 582 ("Courts' treatment of loss of consortia claims demonstrate how the decision to label an injury "derivative' is itself a subjective and policy-based analysis."); see also Laborers Local 17, 191 F.3d at 239 n. 4 ("[T]he term `indirect' may connote concepts — such as remoteness in time or space — other than `derivative,' which itself cannot be defined with absolute precision.").

New problems of proximate causation require a normative inquiry based at least in part upon notions of social justice. As a leading treatise on tort law sums up the matter:

  "Proximate cause" . . . is merely the limitation which
  the courts have placed upon the actor's responsibility
  for the consequences of the actor's conduct. . . .
  Some boundaries must be set to liability for the
  consequences of any act, upon the basis of some social
  idea of justice or policy.
    This limitation is to some extent associated with
  the nature and degree of the connection in fact
  between the defendant's acts and the events of which
  the plaintiff complains. Often to greater extent,
  however, the legal limitation on the scope of
  liability is associated with policy — with our
  more or less inadequately expressed ideas of what
  justice demands, or of what is administratively
  possible and convenient.

W. Page Keeton et al., Prosser and Keeton on the Law of Torts § 41, at 264 (5th ed. 1984); see also Holmes, 503 U.S. at 268, 112 S.Ct. 1311 (quoting Prosser & Keeton).

Analysis of proximate causation must remain flexible, rather than static: as society, its needs, and its norms change, so too must the contours of tort liability and enforcement procedures.

2. Laborers Local 17

In Laborers Local 17, the court concluded that the RICO claims of the union trust funds were "too remote" as a matter of law. The court acknowledged that a black letter rule precluding all claims capable of being characterized as "derivative" or "indirect" would be inconsistent with the modern notion of proximate cause and Supreme Court case law. "[W]here a plaintiff complains of injuries that are wholly derivative of harm to a third party," the court stated, "plaintiffs injuries are generally deemed indirect and as a consequence too remote, as a matter of law, to support recovery." Laborers Local 17, 191 F.3d at 236-37 (emphasis added). "At the same time," the court continued, "the Supreme Court noted the impossibility of articulating a black-letter rule capable of dictating a result in every case." Id. (citing Holmes, 503 U.S. at 272 n. 20, 112 S.Ct. 1311).

The court of appeals proceeded to analyze the plaintiffs' claims in the context of the three policy concerns outlined in Holmes and discussed in the district court's Blue Cross memorandum. See Holmes, 503 U.S. at 269-70, 112 S.Ct. 1311; Blue Cross, 36 F. Supp.2d at 574-77. The court in Laborers Local 17 reiterated that the sufficiency of the plaintiffs' legal claims must, be tested by reference to the general policy considerations set out in Holmes rather than by a facile characterization. It declared:

    Accordingly, we follow the lead of the Holmes Court
  in making clear that, to the extent our description of
  "indirect" or "derivative" injury might seem to
  encompass cases where recovery by the plaintiff would
  not run afoul of the policy concerns set forth above,
  the outer limits of the direct injury test are
  described more by those concerns than by any
  bright-line verbal definition.

Laborers Local 17, 191 F.3d at 239 n.4.

Laborers Local 17 rejected the plaintiffs' complaint only after it had concluded that the claims presented substantial difficulties with respect to the ascertainment and apportionment of damages and after it had decided that the rejection of plaintiffs' claims would not undermine the policies incorporated in the RICO statute. See Laborers Local 17, 191 F.3d at 238-42.

3. Application of Law To Blue Cross And National Asbestos

In Blue Cross, 36 F. Supp.2d 560 (E.D.N.Y. 1999), the district court concluded that the plaintiff health plan providers had standing to press their RICO claims by virtue of the application of the three policy considerations articulated in Holmes and in light of the common law's acceptance of analogous claims under proximate cause and tort analysis. Here, the statutory design and common law conceptions of proximate cause do not appreciably diverge. See Moore v. PaineWebber, 189 F.3d 165, 179-80 (2d Cir. 1999) (Calabresi, J., concurring) ("Where the defendant's behavior is made actionable by a statute, it must of course be the statute that defines the extent of his liability.").

Even were a court to accept defendants' proposition that a large part of the reasoning in Blue Cross was rejected by Laborers Local 17, it does not follow that dismissal is required of the individual claims of the plaintiffs in the current separate Blue Cross cases. As pointed out in some detail in Blue Cross, there are a number of unique features of the Blue Cross plaintiffs and their injuries which are relevant to the proximate cause analysis. Some of these special characteristics were not present in Laborers Local 17. A court should hesitate before stretching precedent too broadly with respect to the flexible and highly fact specific analysis of proximate causation, particularly when a new case presents complicated and distinguishing aspects. See, e.g., People v. Olah, 300 N.Y. 96, 101, 89 N.E.2d 329, 332 (1949) (Fuld, J.)("No opinion is an authority beyond the point actually decided, and no judge can write freely if every sentence is to be taken as a rule of law separate from its association." (citation and quotation marks omitted)).

The Blues are not simply traditional insurers which passively receive premiums for the purpose of allocating risk. Rather, they play a far more active and direct role in the provision of health care to the general public than do traditional insurers, including the plaintiffs in Laborers Local 17. As observed in Blue Cross:

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