United States District Court, E.D. New York
October 12, 2005.
BARBARA SCHWAB et al., individually and on behalf of all others similarly situated, Plaintiffs,
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
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
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.
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.
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
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
"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
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 (1997); Ortiz v. Fibreboard Corp., 527 U.S. 815,
119 S. Ct. 2295 (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.
III. Application of Law to Facts
The 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. Defs.' Br. 10 ff. 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 Master Settlement 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. Defs.' Br. 23.
In response, 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, Pls.' Br.
Ex. 12; lobbying the Federal Trade Commission, Pls.' Br. Ex. 7-8;
cloaking documents with the attorney-client privilege, Pls.' Br.
Ex. 15-17; conducting studies outside the United States so that
the results would remain secret, Pls.' Br. Ex. 10, 11, 19; and
working with scientists sympathetic to the industry to produce
reports favorable to the industry's health claims, Pls.' Br. Ex.
21-22. 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. Pls.' Br. Ex. 36-38.
The enormous amount of conflicting evidence filed by the
parties on the subject of consumer knowledge demonstrates that
genuine issues of fact exist as to the defense of the statute of
limitations. If this case goes to trial, it will be for a jury to
determine when plaintiffs had actual knowledge or should have had
knowledge of the alleged fraud. Cf. Bingham v. Zolt,
66 F.3d 553, 558 (2d Cir. 1995) (jury asked to determine "when the estate
actually knew of defendants' alleged wrongful acts").
The instant matter is unlike other "knowledge" 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 v. Zolt (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 (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. A jury question is
Plaintiffs do not discuss the knowledge timing beyond asserting
that no class member could have known of his injuries until the
publication of Monograph 13. The studies referred to in Chapter 6
of this monograph do provide some support for plaintiffs'
position that many smokers lacked knowledge of the dangers of
"light" cigarettes. Plaintiffs, however, do not refer to any
expert reports on the time when knowledge of dangers about
"light" cigarettes were, or should have been, acquired by
smokers. They concede only that sometime after 2000 smokers were
warned. See Tr. of Sept. 12-13, 2005 Hr'g 180:16-22 (warning by
defendants on internet and in advertisements). Their argument is
essentially one of estoppel: the tobacco companies made
tremendous efforts to keep the truth about "light" cigarettes
from smokers and so should be estopped from arguing that the
smokers learned the truth anyhow. See Price v. Philip Morris,
No. 00-L-112, 2003 WL 22597608 (Ill. Cir.) (in statewide "light"
cigarettes class action trial under Illinois consumer protection
acts, defendant held liable for $7 billion in compensatory and $3 billion in punitive damages).
Price apparently adopted the estoppel theory. 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 ¶ 81. As to actual knowledge, the court
apparently believed 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
The Price court also 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 ¶ 80. Defendants in the present
litigation contest this point, arguing that Monograph 13 was only
a reinterpretation of existing studies. Tr. of Sept. 12-13, 2005
IV. Continuing Problems
A troubling critical problem for plaintiffs is that some
members of the class almost certainly were aware long before 2000
that "light" cigarettes were not appreciably safer for them than
regular cigarettes. The statute would bar their claims. Yet the
plaintiffs may be able to show that a substantial number of
smokers were not aware before May 2000. The individual class
members and their times of awareness may well have differed over
the years. Suppose, for example, that one million became aware in
1998, one million in 1999, one million in 2000 and one million in 2001. The first two million (1998-1999) would be
barred, the third (2000) could be deemed damaged for a year or
less, and the fourth (2001) for somewhat more than a year.
According to plaintiffs' theory of the case, the particular
persons in each group cannot be known.
Assuming a jury could find defendants liable, recovery would
have to depend upon a statistical analysis to estimate how many
smokers knew what and when. See Mem. & Order of Sep. 29, 2005
(Docket No. 763) (discussing Daubert issues). One way that
plaintiffs might proceed would be:
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 would 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.
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
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 susceptible of direct proof.
See, e.g., Federal Judicial Center, Reference Manual on
Scientific Evidence 2 (2d ed. 2000) (Breyer, J., describing the
"great weight" the Supreme Court had placed on statistical
analysis in recent cases); id. at 83-178 (offering guidelines
for the judicial supervision of statistical evidence); id. at
229-276 (guidelines for survey data); id. at 277-334 (damages);
American Bar Association, Econometrics 179-224 (2005) (use of
statistical techniques in class certification to demonstrate
existence of common issues); id. at 1 n. 2 (noting widespread
use of statistical analyses outside antitrust context). Since
discovery is not completed this problem of proof need not be
decided now. V. Unresolved Matters
A. Separate Accruals on Separate Purchases
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 Ltd. P'ships
Litig., 154 F.3d 56, 59 (2d Cir. 1998) (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. Defs.' Reply 15. Plaintiffs have not relied on the
separate accrual rule in their motions in opposition to summary
judgment, Pls.' Br. 34, possibly for the sensible reason that if
knowledge barred all claims for purchases before 2001, a
fortiori it applied to purchases after that date.
B. Equitable Tolling
In view of the present decision, the issue of equitable tolling
because of defendants' alleged fraudulent concealment of the
actual deliveries of tar and nicotine by "light" cigarettes need
not be considered. See Defs.' Br. 18 ff; Price v. Philip
Morris, supra. Whether to present that issue to the jury by
evidence and charge is postponed. VI. Conclusion
The motion for summary judgment on the ground that the statute
of limitations expired before the suit was filed is denied. Leave
to renew is granted upon completion of discovery, with additional
expert and other evidence on how dated knowledge is to be imputed
to the class.
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