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BLUE CROSS AND BLUE SHIELD v. PHILIP MORRIS

February 27, 2001

BLUE CROSS AND BLUE SHIELD OF NEW JERSEY, INC., ET AT., PLAINTIFFS
v.
PHILIP MORRIS, INCORPORATED, ET AT., DEFENDANTS.



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

MEMORANDUM & ORDER

TABLE OF CONTENTS

I. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 164

II. Prerequisites For Summary Judgement . . . . . . . . . . . . . . . . . . . . . . . 165

III. Sufficient Link Between Consumer Protection Act Violations and Damages . . . . . 165 A. Requirement of Causation . . . . . . . . . . . . . . . . . . . . . . . . . . 165 B. Prospective Application of Act . . . . . . . . . . . . . . . . . . . . . . . 166 C. Prospective Force of Act . . . . . . . . . . . . . . . . . . . . . . . . . 166
IV. Aggregated Proof and Erie R. Co. v. Tompkins . . . . . . . . . . . . . . . . . . 167
A. Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 167 B. Application 167 1. Statistical Evidence To Prove Individual Loss . . . . . . . . . . . . . . 171 2. State Substantive Law . . . . . . . . . . . . . . . . . . . . . . . . . . 172 a. Proof By Statistics . . . . . . . . . . . . . . . . . . . . . . . . . . 173 b. Right of Party Injured But Not Deceived . . . . . . . . . . . . . . . . 174
V. Regulatory Compliance under New York Consumer Protection Act . . . . . . . . . . . 174 A.Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 B. Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
VI. Subrogation and Punitive Damages . . . . . . . . . . . . . . . . . . . . . . . . 176 A. Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176 B. Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

VII. Remoteness of State Law Claims . . . . . . . . . . . . . . . . . . . . . . . . . 179

VIII. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179

Defendant Tobacco Companies move for summary judgment on plaintiff's New York based common law fraud and Consumer Protection Act (the "Act") claims, The motion is denied. The case may proceed on both federal and state substantive theories. In a massive case of this nature a final resolution of all viable claims, state and federal, in one court utilizing one procedure is permitted.

I Introduction

The grounds asserted by defendants for summary judgment are:

1) A sufficient link between alleged state law violations and damages cannot be established.
2) The claims cannot be supported by aggregate proof without disturbing the substantive nature of the state law claims in violation of Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188(1938).
3) Tobacco's compliance with federal regulations provides a complete defense to the New York Consumer Protection Act claims.
4) Empire, as a subrogee, cannot seek punitive damages on a common law fraud claim.

5) The state law claims are too remote.

All must be rejected for the reasons described below.

II Prerequisites For Summary Judgement

Summary judgment under Rule 56 of the Federal Rules of Civil Procedure 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). "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). 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 Foundation, 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."). In deciding the motion all inferences and ambiguities are to be resolved in favor of the party opposing summary judgment. See Gallo v. Prudential Residential Servs., Ltd. Partnership, 22 F.3d 1219, 1223 (2d Cir. 1994). 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).

III Sufficient Link Between Consumer Protection Act Violations and Damages

A. Requirement of Causation

Damages must be traced to unlawful acts. United States Football League v. National Football League, 842 F.2d 1335, 1377 (2d Cir. 1988) (citing MCI Communications v. American Telephone & Telegraph Co., 708 F.2d 1081, 1161 (7th Cir. 1983)). Under plaintiff's substantive theory proof of causation is essential. The Supreme Court emphasized the necessity of this link in Bigelow v. RKO Radio Pictures, Inc., 327 U.S. 251, 264, 66 S.Ct. 574, 90 L.Ed. 652(1946). It relaxed the standard for proving the amount of damages only after "proof of defendant['s] wrongful acts and their tendency to injure plalntiff['s] business, and from the evidence of the decline in prices, profits and values, not shown to be attributable to other causes." 327 U.S. at 264, 66 S.Ct. at 579.

Defendants argue that summary judgment should be granted because Empire cannot connect Tobacco's alleged misconduct to its alleged damages. Specifically, Tobacco claims Empire's statistical damage model 1) includes post-1980 damages resulting from irrelevant pre-1980 conduct, and 2) fails to distinguish between antitrust and fraud damages. For the reasons stated below, it appears reasonable to apply the New York Consumer Protection Act only prospectively to acts committed after 1980 in private suits such as the instant one. Because plaintiff has indicated it will revise damage estimates and its statistical and other proof to conform with prospectivity requirements, decision is reserved regarding sufficiency of the evidence pending further submissions by the parties.

B. Prospective Application of Act

The crux of defendant's first argument involves an interpretation of the New York Consumer Protection Act, New York General Business Law sections 349 and 350. Both sections were amended to create a private right of action for damages on June 19, 1980. See generally New York General Business Laws §§ 349(h) & 350-e(3). The parties agree that under both sections a party may not recover for damages sustained prior to that date. Plaintiffs contention, contested by defendants, is that it may recover damages suffered after 1980 that resulted from misconduct that occurred prior to that date; on this point defendants are correct.

Generally, New York statutes are applied prospectively, unless there is a clear legislative indication to the contrary. See Rudin Management Co. Inc. v. Commissioner, Dept. of Consumer Affairs, 213 A.D.2d 185, 623 N.Y.S.2d 569 (N.Y.App. Div. 199 5). Retroactive application of a statute is inappropriate when it would deprive a party of "a substantial right" or ...


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