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SCHWAB v. PHILIP MORRIS USA

October 12, 2005.

BARBARA SCHWAB et al., individually and on behalf of all others similarly situated, Plaintiffs,
v.
PHILIP MORRIS USA, INC. et al., Defendants.



The opinion of the court was delivered by: JACK WEINSTEIN, Senior District Judge

MEMORANDUM AND ORDER DEFENDANTS' MOTION FOR SUMMARY JUDGMENT ON STATUTE OF LIMITATIONS
I. Introduction
In this civil RICO class action, defendants move for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. They contend that, as a matter of law, plaintiffs' claims are barred by RICO's four-year statute of limitations; plaintiffs oppose. See Defs.' Br. in Supp. of Mot. for Summ. J. on Stat. of Lims. ("Defs.' Br.") (Docket No. 431); Decl. of Todd Geremia ("Geremia Decl.") (Docket No. 442); Defs.' Reply Br. in Supp. of Mot. for Summ. J. Stat. of Lims. ("Defs.' Reply") (Docket No. 721); Pls.' Br. in Opp. to Defs.' Mot. for Summ. J. on Stat. of Lims. ("Pls.' Br.") (Docket No. 607). Because the statute of limitations is an affirmative defense, discovery is not yet concluded and it cannot be said with any assurance at this time that defendants would necessarily succeed in proving the defense at trial, the motion is denied with leave to renew upon completion of discovery. II. Law

A. Burdens on Summary Judgment

  Summary judgment is granted "if the pleadings, depositions, answers to the interrogatories, and admissions on file, together with the affidavits, if any, show 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." Rule 56(c), Fed.R.Civ.P. The movant bears the burden of showing "that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2554 (1986). Evaluation of the record is conducted in a "light most favorable to the party opposing the motion." U.S. v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 994 (1962) (per curiam); see also O'Bert ex rel. Estate of O'Bert v. Vargo, 331 F.3d 29, 37 (2d Cir. 2003).

  Critical is recognition of the jury's fact-finding primacy:
It is well established that credibility assessments, choices between conflicting versions of the events, and the weighing of evidence are matters for the jury, not for the court on a motion for summary judgment. If, as to the issue on which summary judgment is sought, there is any evidence in the record from which a reasonable inference could be drawn in favor of the opposing party, summary judgment is improper.
Curry v. City of Syracuse, 316 F.3d 324 (2d Cir. 2003) (quotation marks omitted).

  B. RICO Statute of Limitations

  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, 2765-6 (1987). RICO itself does not contain a statute of limitations. See Malley-Duff, 483 U.S. at 146. By reference to the private enforcement provisions of the Clayton Antitrust Act, 15 U.S.C. § 15(a), after which civil RICO was modeled, the Court has supplied one. Id. at 153. Limitation runs from the date when a plaintiff discovers or reasonably should have discovered his or her injury. Rotella v. Wood, 528 U.S. 549, 555-560. The determination of that date is a question of fact.

  The statute of limitations is an affirmative defense; defendants must plead and prove it. Fed.R.Civ.P. 8(c). They must demonstrate, as a matter of law, when the class members either 1) knew or 2) should have known of their injuries. In re Merrill Lynch Ltd. Partnerships Litigation, 154 F.3d 56, 59 (2d Cir. 1998). As to the first, they 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 (Docket No. 346). These surveys are controverted by plaintiffs, who rely upon surveys referred to in Risks Associated with Smoking Cigarettes with Low Machine-Measured Yields of Tar and Nicotine (Nat'l Cancer Institute, Nov. 1, 2001) ("Monograph 13"). As to the second, defendants have marshaled a number of media reports, public service announcements and case filings. See infra at 4, 7. These, too, are met with evidence supplied by plaintiffs. Id. at 7-8.

  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. Defs.' Br. in Opp. to Class Cert. 58 ff.

  Plaintiffs filed this case on May 11, 2004, claiming economic injuries arising from their fraud-induced purchases of light cigarettes marketed by defendants since 1971. Second Amended Complaint ("Compl.") ¶ 30, No. CV 04-1945 (E.D.N.Y.) (Docket No. 95). The bar of limitations is measured from a date four years earlier — May 11, 2000. Should plaintiffs have known of the fraud prior to that date?

  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 (Mass.Sup.Ct.) (filed 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. See Defs.' Br. 4-7. 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. Defs.' Br. 2; Compl. for Damages and Injunctive and Declaratory Relief ("Gov't Compl.") at 37-40, United States v. Philip Morris, No. 1:99CV02496 (D.D.C. 1999). Other private and state government plaintiffs filed RICO and consumer fraud suits in the 1990s alleging deceptive marketing of "light" cigarettes. Defs.' Br. 21-22. See, e.g., Allman v. Philip Morris, Inc., No. 94-0504-IEG (S.D. Cal.); Commonwealth of Mass. v. Philip Morris Inc., No. 95-7378 (Mass. Dist. Ct.); Maryland v. Philip Morris Inc., No. 96122017/CL211487 (Baltimore Cir. Ct.); Oregon v. Philip Morris, Inc., No. 9706-04457 (Or. Cir. Ct.); Blue Cross & Blue Shield of N.J., Inc. v. Philip Morris, Inc., CV 98 3287 (E.D.N.Y.).

  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. See Defs.' Br. 4 n. 1; Geremia Decl. Ex. 2. Defendants contend that this knowledge should be imputed to the entire class under principles of agency. See Defs.' Br. 4 ff.; Defs.' Reply 9 ff. 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 § 272 (agent's knowledge imputed to principal). An attorney's knowledge of an injury may work to bar his client's claim under a statute of limitations. See Geracia at 725 (plaintiff's § 1983 claim time-barred because his attorney knew of injury outside three-year statute of limitations period).

  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 ...


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