ENDGAME?: How The Tobacco Litigation May Finally End For Good, In Judge Weinstein's New York Courtroom

Is it possible that American law's love affair with tobacco may be coming to an end? In the next month, Judge Jack Weinstein will have the opportunity to sound the death knell of the centibillion-dollar tobacco litigation that has wracked American courts and fascinated American lawyers over the past five years. Whether he does so has a lot to do with factors under his control in his own courtroom in Brooklyn, New York.

Sometime next week, the plaintiffs, Empire Blue Cross and Blue Shield of New York, will finish presenting their case in Blue Cross and Blue Shield of New Jersey Inc. v. Philip Morris Inc. The case, as a whole, is the result of a consolidation of various RICO and fraud claims brought by twenty-one Blue Cross and Blue Shield plans; Weinstein has ordered that Empire's case, in particular, be tried first.

The dollar value of Empire's $1 billion case ($3 billion with treble damages) is not large compared to the hundred of billions of dollars involved in the 1998 multistate settlement, or last year's punitive damage award in Florida's smoker class action, but the case is nevertheless important. That is because a victory for the defendants would be a strategic blow to Weinstein's attempts to force Big Tobacco to accept a global settlement for all of the tobacco cases (including a national class action) pending in his court.

Empire's case is the culmination of a litigation strategy that emerged through fits and starts over the past 40 years, as various anti-tobacco lawyers have tried to figure out how to sue and win against Big Tobacco. The popular image of this legal campaign has been that of David and Goliath. But in reality the reason why plaintiffs have had trouble suing over the sale of cigarettes is not just that Big Tobacco could outspend them in litigation. It is, to put it bluntly, that the plaintiffs have had to make arguments that, to put it mildly, push the envelope of settled tort law.

For the first thirty years of litigation, lawyers tried to sue Big Tobacco by bringing claims alleging products liability — the same type of claims that might be brought against, say, a company whose lawnmowers exploded. These cases failed for a number of reasons, but two were most significant. First, it is not obvious that cigarettes are defectively designed (they seem to do what they are designed to do). Second, even if cigarettes are defective, smokers seemed well aware of the defect when they purchased the product — which was a serious Achilles' heel to plaintiffs' cases.

In the last ten years, however, the whole landscape of tobacco litigation changed. The focus of the litigation shifted away from smokers, and moved to third parties who did not choose to smoke but who were injured because of others' smoking.

Another piece fell into place in the legal war against Big Tobacco at the same time: the nature of the claim changed along with the identity of the plaintiffs. In the third party payer cases, the states and other insurers have alleged that Big Tobacco's lies about smoking — not the cigarettes themselves — are what injured their insureds.

Does the shift in the nature of the claim matter? Technically speaking, it should make no difference in the fundamental structure of a third party payer case why an insurer paid out on behalf of its insured. But in practice, as we shall see, adding fraud to the mix has made a big difference to the strength of the plaintiffs' cases.

The gravamen (the legal core) of the third party cases is unremarkable. In essence, the insurer says to the defendant, "You injured my insured; I paid for my insured's medical (or auto repair, or whatever) bills; now you pay me."

Such a claim, in other contexts, is usually framed as a garden-variety subrogation claim — where one party seeks to collect money owed to another because the former has stepped into the latter's shoes. But the third party payers cases are remarkable because, except in the multistate settlement, the plaintiffs have gone to extraordinary lengths to bury (and if possible, eliminate) the word "subrogate" from this litigation.

This is because of the consequence of truly claiming that the plaintiff-insurer "stands in the shoes" of her insured vis-a-vis the tobacco companies. If the plaintiff-insurer stands in the insured's shoes, it follows that the plaintiff-insurer is also vulnerable to the arguments that can be made against the insured himself or herself — particularly the familiar argument above, that the insured knew the risk and chose to smoke. The insurers do not want to open the door to the usual parade of "assumption of risk" arguments that Big Tobacco has used against individual smokers who sued over the past 40 years.

One of the ways that the insurers have tried to finesse the subrogation problem is by framing their claim in civil RICO. For those unfamiliar with RICO, the RICO — or Rackeetering-Influenced Corrupt Organizations — statute was devised to address organized crime, but it is written in broad language that has resulted in RICO claims being brought whenever a pattern of behavior that fits within the series of listed RICO predicate offenses can be alleged. One incentive for bringing a civil RICO claim is that treble damages are available, so that the plaintiff's expected recovery is much greater, and leverage for settlement is commensurately greater, too.

The maneuver of bringing civil RICO claims is actually quite brilliant: The insurer argues that the injury it suffered when it paid for a smoker's bills was the result of a conspiracy to lie about the health risks of tobacco, and that this conspiracy was accomplished by mail and wires (so that the RICO predicate offenses of mail and wire fraud are fulfilled).

Needless to say, however, this "direct injury" argument so far has not survived the laugh test in any court (including Weinstein's). Health insurers, along with the FDA, were probably the first people in America to have reason to distrust Big Tobacco.

In most cases, including Empire, the argument is, instead, that the insurer suffered indirectly. The argument is that Big Tobacco's "racketeering" — that is, its alleged series of tobacco-related lies — while not directed at the insurer, was still the proximate cause of the insurer's property loss.

Why property loss, you may ask? Because civil RICO permits treble damages only for loss of business or property, not personal injury. The insurers claim they lost "property" (money counts as "property" for these purposes) by paying out more in claims than they would have, had they known the truth.

To see what this shift to RICO claims means, imagine that Tony Soprano torched the truck of Sal Smith, a legitimate garbage hauler whom the Sopranos were trying to muscle, and that Soprano had earlier committed other arsons against Smith. Smith, luckily, is insured, and his insurer, Allstate, pays the full value of his claim. If the "indirect injury" theory were accepted by a court, Allstate could then sue Tony Soprano for triple the value of the truck under RICO. (Arson is a RICO offense; the truck would be the property; treble damages would be available).

But of course, this is subrogation all over again, for Allstate must step into Smith's shoes. Allstate would still have to prove that Soprano wrongfully destroyed Smith's property, just as if Smith were suing Soprano directly. Calling an insurance loss by fraud "racketeering" doesn't change the fundamental basis of the clam (though it can dramatically increase the damages available).

Most courts who have heard these arguments have decided that the financial injury to insurers by Big Tobacco is too remote in comparison to the injury to the smokers themselves, and that if anyone should sue Big Tobacco it should be the smoker, not the insurance companies. For example, Judge Weinstein himself was rebuffed by the Second Circuit Court of Appeals when he allowed a union health care plan to sue in RICO under just this theory.

One federal jury flatly rejected that there was any causation at all. In a third party reimbursement case in Ohio in 1999, the jury were persuaded by Big Tobacco's lawyers that there was no racketeering because smokers didn't really believe the lies spread by cigarette advertising.

The distinction Weinstein has made is a slender one. He has said that the cases are different because proximate cause — here, the issue of whether an injury is too remotely connected to the conduct at issue to be compensated — is "always" fact-intensive.

Weinstein also pushed a third party case (the Falice case) involving the reimbursement of an asbestos trust fund for the enhanced injuries that smoking caused in asbestos workers to mistrial, and then to retrial.

In the Blue Cross/Blue Shield cases, Weinstein has labored to protect the plaintiff's RICO claims (risking almost certain reversal by the Second Circuit) for a case that even he knows may not have very strong facts.

The factual difficulties for Empire flow from the fact that it is making a claim in RICO; it is not making a claim about the personal injuries suffered by smokers. Empire has to show that it — as opposed to its customers or their families — suffered a property loss because some of its customers, who were smokers, were fooled by alleged Big Tobacco lies into believing that smoking was not addictive and/or carcinogenic.

The fundamental question the jury will have to answer is whether Big Tobacco's misinformation campaign was a substantial factor in the alleged 1 billion dollars that Empire spent on costs for smokers' health care. To do this, Empire will have to prove that Big Tobacco's lies were a major factor in its membership's decision either to begin smoking, or to continue smoking.

Since the third party payer cases are not class actions, Weinstein has been able to get around the problem of whether the plaintiffs have to prove the individual reliance of each insured smoker (that is, that each smoker personally relied on the Big Tobacco lies in decision to begin or continue smoking). Effectively mooting this question, Weinstein has permitted Empire to prove its case through statistical, not individual, evidence.

But what is good for the gander is good for the goose: Big Tobacco can also use broad historical and sociological evidence to rebut Empire's claim of "group reliance". The defendants may actually win this point. Recent cases in New York and Florida have suggested that juries are becoming hardened to the argument that smokers were ignorant of cigarettes' dangers. If this trend holds true, a New York jury could find that smokers did not rely, and thus that Empire cannot recover.

Big Tobacco can raise some difficult questions for Empire, such as whether or not the insurer charged higher premiums for health insurance for smokers. If Empire charged more money to smokers in anticipation of their tobacco-related health costs, then it is not clear that it suffered when it had to pay those costs later. The smokers themselves, who paid higher premiums, would be the ones out of pocket if that is true.

Empire may deny it surcharged smokers enough to cover anticipated costs. But if so, Big Tobacco should ask "Why not?" Empire may respond that it was was fooled into underestimating tobacco's health risks by Big Tobacco's lies. But that response would only force Empire to argue the theory of "direct injury"—that is, injury by the alleged lies because they were believed by the insurer itself. And that theory has already failed the laugh test once in Weinstein's courtroom.

Weinstein has indicated that he does not think that Empire's factual case is very strong. Based on this indication, Big Tobacco will certainly ask for a directed verdict (a verdict, that is, that would allow Big Tobacco to win without trial). But I doubt Weinstein will grant it, despite his doubts as to the case's merits.

For one thing, a judge's doubt do not necessary mean a case should be taken from the jury, the ultimate factfinder. For another, the third party payer cases, as Weinstein is well aware, are part of a larger game that is being played out, and, I think, it is an end game.

Weinstein, a strategic thinker and jurist, will let Empire's case go to the jury if he thinks it will help him achieve his larger goal, which is forcing Big Tobacco to accept a settlement in a separate Big Tobacco case, also before the judge. That case is a national class action on behalf of all smokers for claims in products liability and common law fraud.

The class action, called Simon II, has been sitting on Weinstein's desk awaiting class certification since last year. A class certification decision resolves whether claims will proceed as a class action, which can bind huge numbers of plaintiffs absent from the courtroom, or as individual cases, which must proceed one by one or in small sets — often in different venues, generally at higher cost, and with plaintiffs having to appear in court.

Judge Weinstein may believe that the case has a much better chance of surviving appeal if it is certified for settlement purposes (a move to which Big Tobacco, as well as the other parties, would have to agree) than if it is certified for trial (which Big Tobacco would oppose with their last dying breath).

How, you may ask, is the proposed national class action in Simon II related to the third party payer cases such as the Empire case? The answer is, again, strategic. The third party payer cases on Weinstein's docket may not be as strong as they once appeared two or three years ago, but they still may have some life left in them — especially in the hands of a clever trial judge and a sympathetic jury.

If Empire can get a win this month—even if its facts and law are so weak as to guarantee a Second Circuit reversal—then the remaining third party payer cases will go forward in Brooklyn before Judge Weinstein. As a result, there will be renewed pressure on Big Tobacco to accept a global settlement in Simon II rather than endure further costly litigation (as well as terrible public relations).

On the other hand, if the Empire case collapses under the weight of the rather large burden that it must carry under RICO, then the rest of the third party payer cases will probably melt away. (That is, they will probably disappear as a threat in federal court, at least.). If that happens, then Weinstein's last and best chance for pushing a settlement will disappear as well. While an Empire win would grant settlement leverage in Simon II, an Empire loss would make a Simon II settlement very unlikely.

This second scenario could mean the beginning of the end of Big Tobacco litigation, too — but it would also mean a victory for Big Tobacco. One way or the other, though, we may be watching an endgame.