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
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).
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
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.
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
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.
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
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
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
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