Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc. ( 1999 )

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
3-29-1999
Steamfitters Loc 420 v. Philip Morris Inc
Precedential or Non-Precedential:
Docket 98-1426
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Filed March 29, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 98-1426
STEAMFITTERS LOCAL UNION NO. 420 WELFARE FUND;
INTERNATIONAL BROTHERHOOD OF PAINTERS AND
ALLIED TRADES, DISTRICT COUNCIL NO. 21 WELFARE
FUND; INTERNATIONAL BROTHERHOOD OF
ELECTRICAL WORKERS, LOCAL UNION NO. 98, HEALTH
& WELFARE FUND; COMPOSITION ROOFERS UNION
LOCAL 30 COMBINED HEALTH & WELFARE FUND;
LABORERS' DISTRICT COUNCIL BUILDING AND
CONSTRUCTION HEALTH AND WELFARE FUND;
CARPENTERS HEALTH & WELFARE FUND OF
PHILADELPHIA AND VICINITY; CEMENT MASON'S UNION
LOCAL NO. 592, on behalf of themselves and all others
similarly situated,
APPELLANTS
v.
PHILIP MORRIS, INC.; R.J. REYNOLDS TOBACCO
COMPANY; BROWN & WILLIAMSON TOBACCO
CORPORATION; B.A.T. INDUSTRIES P.L.C.; LORILLARD
TOBACCO COMPANY, INC.; LIGGETT & MYERS INC.;
THE AMERICAN TOBACCO COMPANY; UNITED STATES
TOBACCO COMPANY; THE COUNCIL FOR TOBACCO
RESEARCH--U.S.A., INC.; THE TOBACCO INSTITUTE,
INC.; SMOKELESS TOBACCO COUNCIL, INC.;
HILL & KNOWLTON, INC.
On Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 97-cv-05344)
District Judge: Honorable John P. Fullam
Argued: January 28, 1999
Before: BECKER, Chief Judge, SCIRICA and ROSENN,
Circuit Judges.
(Filed March 29, 1999)
MELVYN I. WEISS, ESQUIRE
MICHAEL C. SPENCER, ESQUIRE
(ARGUED)
KENNETH J. VIANALE, ESQUIRE
BETH A. KASWAN, ESQUIRE
JOAN T. BROWN, ESQUIRE
Milberg, Weiss, Bershad, Hynes &
Lerach, LLP
One Pennsylvania Plaza
New York, NY 10119
RICHARD B. SIGMOND, ESQUIRE
THOMAS H. KOHN, ESQUIRE
Sagot, Jennings & Sigmond, P.C.
The Penn Mutual Towers
510 Walnut Street, 16th Floor
Philadelphia, PA 19106
ROBERT J. CONNERTON, ESQUIRE
JAMES R. RAY, ESQUIRE
JOHN McN. BROADDUS, ESQUIRE
Connerton & Ray
1401 New York Avenue, N.W.,
10th Floor
Washington, DC 20005
PERRY WEITZ, ESQUIRE
ROBERT L. GORDON, ESQUIRE
JERRY KRISTAL, ESQUIRE
MITCHELL BREIT, ESQUIRE
KAREN J. SABINE, ESQUIRE
Weitz & Luxenberg, P.C.
51 Haddonfield Road, Suite 160
Cherry Hill, NJ 08002
2
Of Counsel:
PROFESSOR G. ROBERT BLAKEY
PROFESSOR EINER ELHAUGE
Counsel for Appellants
HERBERT WACHTELL, ESQUIRE
(ARGUED)
STEVEN M. BARNA, ESQUIRE
PETER C. HEIN, ESQUIRE
STEPHEN R. BLACKLOCKS,
ESQUIRE
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, NY 10019
MARY A. McLAUGHLIN, ESQUIRE
DAVID M. HOWARD, ESQUIRE
ALINE J. FAIRWEATHER, ESQUIRE
ANDREW S. MILLER, ESQUIRE
KATHY E. OCHROCH, ESQUIRE
Dechert, Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103-2793
DAVID S. EGGERT, ESQUIRE
JAMES ROSENTHAL
Arnold & Porter
555 12th Street, N.W.
Washington, DC 20004
Counsel for Appellee Philip Morris
Incorporated
ROBERT H. KLONOFF, ESQUIRE
PAUL S. RYERSON, ESQUIRE
PAUL REICHERT, ESQUIRE
Jones, Day, Reavis & Pogue
Metropolitan Square
1450 G Street, N.W.
Washington, DC 20005
3
JOHN D. GOETZ, ESQUIRE
MAUREEN T. TAYLOR, ESQUIRE
Jones, Day, Reavis & Pogue
1 Mellon Bank Center,
31st Floor
500 Grant Street
Pittsburgh, PA 15219
Counsel for Appellee R.J. Reynolds
Tobacco Company
EDWARD W. WARREN, ESQUIRE
KENNETH N. BASS, ESQUIRE
Kirkland & Ellis
655 15th Street, N.W., Suite 1200
Washington, DC 20005
Counsel for Appellee Brown &
Williamson Tobacco Corporation
(including as successor by merger to
The American Tobacco Company)
WILLIAM J. O'BRIEN, ESQUIRE
HOWARD M. KLEIN, ESQUIRE
Conrad, O'Brien, Gellman &
Rohn, P.C.
1515 Market Street, 16th Floor
Philadelphia, PA 19102-1916
JEFFREY S. NELSON, ESQUIRE
JOSEPH A. LANAHAN, ESQUIRE
Shook, Hardy, & Bacon, LLP
One Kansas City Place
1200 Main Street
Kansas City, MO 64105
Counsel for Appellee Lorillard
Tobacco Company
4
J. KURT STRAUB, ESQUIRE
Obermayer, Rebman, Maxwell &
Hippel, LLP
One Penn Center, 19th Floor
1617 John F. Kennedy Blvd.
Philadelphia, PA 19103-1895
Counsel for Appellee Liggett & Myers,
Inc.
STEPHEN J. IMBRIGLIA, ESQUIRE
Hecker, Brown, Sherry & Johnson
18th & Arch Streets
1700 Two Logan Square
Philadelphia, PA 19103
Counsel for Appellee United States
Tobacco Company
PATRICK W. KITTREDGE, ESQUIRE
GLENN E. DAVIS, ESQUIRE
Kittredge, Donley, Elson, Fullem &
Embick, LLP
421 Chestnut Street, 5th Floor
Philadelphia, PA 19106
STEVEN KLUGMAN, ESQUIRE
R. TOWNSEND DAVIS, JR.
Debevoise & Plimpton
875 Third Avenue
New York, NY 10022
Counsel for Appellee The Council for
Tobacco Research-USA, Inc.
WILLIAM J. O'BRIEN, ESQUIRE
HOWARD M. KLEIN, ESQUIRE
Conrad, O'Brien, Gellman &
Rohn, P.C.
1515 Market Street, 16th Floor
Philadelphia, PA 19102-1916
Counsel for Appellee The Tobacco
Institute
5
WILBUR L. KIPNES, ESQUIRE
Schnader, Harrison, Segal &
Lewis, LLP
1600 Market Street, Suite 3600
Philadelphia, PA 19103
Counsel for Appellee Smokeless
Tobacco Council, Inc.
RICHARD L. KREMNICK, ESQUIRE
Blank, Rome, Comisky &
McCauley, LLP
One Logan Square, 10th Floor
Philadelphia, PA 19103-6998
BRUCE M. GINSBERG, ESQUIRE
MARC RACHMAN, ESQUIRE
Davis & Gilbert
1740 Broadway
New York, NY 10019
Counsel for Appellee Hill &
Knowlton, Inc.
STEPHANIE W. KANWIT, ESQUIRE
Groom Law Group Chartered
1701 Pennsylvania Avenue, N.W.
Washington, DC 20006
DAVID ALLEN, ESQUIRE
CORINA TRAINER, ESQUIRE
UMWA Health & Retirement Fund
4455 Connecticut Avenue, N.W.
Washington, DC 20008
DANIEL B. EDELMAN, ESQUIRE
Yablonski, Both & Edelman
1140 Connecticut Avenue, N.W.
Washington, DC 20036
Counsel for Amicus Curiae United
Mine Workers of America Combined
Benefit Fund
6
KENNETH S. GELLER, ESQUIRE
JOHN J. SULLIVAN, ESQUIRE
Mayer, Brown & Platt
2000 Pennsylvania Avenue, N.W.
Washington, DC 20006
STEPHEN A. BOKAT, ESQUIRE
ROBIN S. CONRAD, ESQUIRE
National Chamber Litigation
Center, Inc.
1615 H Street, N.W.
Washington, DC 20062
Counsel for Amicus Curiae Chamber
of Commerce of the United States
CARL R. SCHENKER, JR., ESQUIRE
JOHN H. BEISNER, ESQUIRE
TERESA SWONG, ESQUIRE
O'Melveny & Myers, LLP
555 13th Street, N.W.
Suite 1500 West
Washington, DC 20004
HUGH F. YOUNG, JR., ESQUIRE
Produce Liability Advisory
Council, Inc.
1850 Centennial Park Drive,
Suite 510
Reston, VA 22091
Counsel for Amicus Curiae Product
Liability Advisory Council, Inc.
JAN S. AMUNDSON, ESQUIRE
General Counsel
National Association of
Manufacturers
1331 Pennsylvania Avenue, N.W.
Suite 1500 - North Lobby
Washington, DC 20004-1790
Counsel for Amicus Curiae National
Association of Manufacturers
7
OPINION OF THE COURT
BECKER, Chief Judge.
This is one of a vast number of cases filed in state and
federal courts all over the nation seeking to hold tobacco
companies liable for the smoking-related costs incurred by
union health and welfare funds. The plaintiff funds allege
that they were defrauded by the defendants--tobacco
companies and related industry organizations--into paying
for their participants' smoking-related illnesses, as well as
prevented by these defendants from informing the funds'
participants about safer smoking and smoking-cessation
products. The defendants allegedly conspired to prevent the
funds from obtaining and using information that would
have reduced the incidence of smoking--and therefore of
illness--among the funds' participants. The fraud and
conspiracy charges are the underpinnings of plaintiffs'
federal statutory claims, which are brought under the
antitrust laws and the civil RICO statute. Plaintiffs also
assert state common-law claims based on supplemental
jurisdiction.
The District Court dismissed plaintiffs' complaint under
Federal Rule of Civil Procedure 12(b)(6), on the ground that
the claimed injuries of the plaintiff funds were too remote
from any wrongdoing of the defendants to be redressable
under either federal or state law. The correctness of that
conclusion is the primary issue on this appeal. Put another
way, we are called upon to determine whether plaintiffs
have alleged a compensable injury proximately caused by
defendants' allegedly fraudulent and conspiratorial conduct
sufficient to avoid dismissal under Rule 12(b)(6). This basic
proximate cause inquiry, drawn from tort law, is
complicated by the allegations of intentional tort, the
packaging of plaintiffs' claims in RICO and antitrust terms,
and the addition of state-law claims based on fraud, special
duty, unjust enrichment, negligence, strict liability, and
breach of warranty. In the end, we conclude that the
District Court correctly dismissed all of plaintiffs' primary
claims as being too remote from any alleged wrongdoing of
8
defendants, and the other claims as concomitantly lacking
in merit; hence, we affirm the dismissal of the complaint in
its entirety.
I. Background
A. Facts and Procedural History
This suit was brought by seven Pennsylvania-based
union health and welfare funds (the "Funds") as a putative
class action on behalf of all such similarly-situated funds
against eight tobacco companies and certain industry
organizations (collectively, the "tobacco companies")1 to
recover for the Funds' costs of treating their participants'
smoking-related illnesses. The suit is patterned after
similar suits brought by state attorneys general, which were
recently settled with the tobacco companies for more than
$200 billion.2 See Barry Meier, Remaining States Approve
the Pact on Tobacco Suits, N.Y. Times, Nov. 21, 1998, at A1.3
_________________________________________________________________
1. The defendants include tobacco companies Philip Morris; R.J.
Reynolds; Brown & Williamson; B.A.T. Industries; Lorillard; Liggett &
Myers; the American Tobacco Company; and the United States Tobacco
Company. In addition, named as defendants are the Council for Tobacco
Research-USA; the Tobacco Institute; Smokeless Tobacco Council; and
Hill & Knowlton, a public relations firm.
2. The parties cite a large number of reported state and federal opinions
of this genre (of both the union fund and attorney general variety), and
have also provided us with a considerable number of unreported
decisions. For the benefit of students of this litigation war, we list
these
decisions in an Appendix to this opinion. We note that in the vast
majority of the union fund cases cited by the parties (15 of 20), at least
some of the plaintiffs' claims were dismissed. In 11 of the 20 cases
(including the present one), courts have dismissed the plaintiffs' entire
case. In the only case to reach a jury, the tobacco companies recently
prevailed in federal court in Ohio. See Barry Meier, Verdict Backs
Cigarette Makers in Suit by Union Health Funds, N.Y. Times, Mar. 19,
1999, at A10.
3. Although the tobacco companies and state attorneys general have
reached an agreement resolving the state suits, the litigation
surrounding these cases is apparently far from over. See, e.g., Ann
Belser & Mark Belko, County Files Suit Against Tobacco, Pitt. Post-
9
In the present case, the Funds have brought federal claims
under the Racketeer Influenced and Corrupt Organizations
Act ("RICO"), 18 U.S.C. S 1962, and the antitrust laws, 15
U.S.C. S 1. Their complaint also includes, under the
supplemental jurisdiction statute, 28 U.S.C. S 1367, state-
law claims for misrepresentation, breach of special duty,
unjust enrichment, negligence, strict liability, and breach of
warranty. The Funds seek both damages and extensive
injunctive relief requiring the defendants to disclose any
research on smoking that they have concealed, engage in a
public education campaign to reduce smoking, cease
advertising their products to minors, and fund smoking-
cessation programs.
The Funds allege, inter alia, that the tobacco companies
conspired to suppress research on safer tobacco products,
defrauded health care providers and payers by informing
them that the companies' tobacco products were safe, and
caused smokers to become ill by preventing the
dissemination of smoking-reduction and smoking-cessation
information. All of these actions allegedly caused the costs
of smoking-related illnesses to be shifted from their proper
source, the tobacco companies, to the plaintiff Funds (and
others). This shift in costs purportedly was accomplished
through the intentional and fraudulent actions of the
tobacco companies, directed at both smokers and the
Funds themselves.
Seeking to recover for these costs, the Funds filed suit in
the District Court for the Eastern District of Pennsylvania
in August 1997. Shortly thereafter, the defendants moved
to dismiss the complaint under Federal Rule of Civil
_________________________________________________________________
Gazette, Mar. 6, 1999, at A1 (noting that Allegheny County,
Pennsylvania, had filed suit against the tobacco companies in federal
court at the same time it was seeking in state court to block final
approval of the settlement by the attorneys general). In addition, the
federal government appears poised to act. See White House Office of
Communications, FY2000 Budget Summary and Supporting Materials
(Feb. 1, 1999), available in 1999 WL 42060, at *46 ("To recover these
losses [from tobacco-related health problems], the U.S. Department of
Justice intends to bring suit against the tobacco industry, and the
budget provides $20 million to pay for necessary legal costs.").
10
Procedure 12(b)(6), and, in an order accompanied by an
unpublished opinion, the District Court granted the motion.
See Steamfitters Local Union No. 420 Welfare Fund v. Philip
Morris, Inc., No. CIV.A.97-5344, 1998 WL 212846 (E.D. Pa.
Apr. 22, 1998). The Court relied on two general grounds to
dismiss the entire complaint, and invoked a number of
additional rationales to reject the Funds' specific claims.
First, it held that plaintiffs did not state a claim because of
"the general rule [that] has long been established that one
who pays the medical expenses of an injured party does not
have a direct claim against the tortfeasor who caused the
injury." Id. at *1. The District Court decided, however, that
it "need not dwell upon this issue," as the Funds' claims
"suffer from an even more fundamental flaw, namely, the
fact that plaintiffs have not suffered any cognizable
damages." Id. at *2. The District Court reasoned that the
Funds' increased costs for smoking-related illnesses caused
them no injury because "plaintiffs are merely handling the
payments with money provided by others, and have no
genuine stake in the matter," id., and"cannot claim to have
suffered any economic loss in the form of lost profits," id. at
*3.
The District Court also dismissed the complaint because
(1) plaintiffs "allege no injury of the sort the antitrust laws
were designed to prevent"; (2) the Funds' common-law
fraud claims "are entirely too speculative to be taken
seriously"; (3) plaintiffs "simply do not have legal standing
to advance" claims for injunctive relief; (4) the state special-
duty claim is "restricted to `physical harm' " that plaintiffs
do not allege they suffered; and (5) the Funds' unjust
enrichment claim "is simply a subrogation claim expressed
in different language." Id. at *3-*4. Plaintiffs filed a timely
notice of appeal. We have appellate jurisdiction under 28
U.S.C. S 1291. Our review of the District Court's order is
plenary. See Gallo v. City of Philadelphia, 161 F.3d 217,
221 (3d Cir. 1998). We accept as true all factual allegations
in the complaint and will affirm a dismissal under Rule
12(b)(6) only if "it is certain that no relief can be granted
under any set of facts which could be proved." City of
Pittsburgh v. West Penn Power Co., 147 F.3d 256, 262 n.12
(3d Cir. 1998) (internal quotations omitted).
11
B. The Allegations and Theory of the Complaint
Plaintiffs' complaint is voluminous (containing 317
paragraphs and running to 116 pages) and detailed in its
explication of the history of the tobacco companies' alleged
wrongdoing. By now, this history is well-known to the
public at large, though plaintiffs rely heavily on the fact
that the defendants successfully conspired to cover up their
wrongdoing for almost five decades. This conspiracy was
allegedly directed at both smokers and the plaintiff Funds
themselves. Therefore, plaintiffs aver, they are both indirect
and direct victims of the defendants' wrongful conduct.
1. The Indirect Injury
The Funds' indirect injury allegedly arises from the fact
that they paid millions of dollars for the smoking-related
medical expenses of Fund participants whom they say were
victimized by the tobacco companies' conspiracy and fraud.
The defendants respond that this indirect claim is simply a
traditional subrogation claim dressed up in treble-damages
federal statutory clothing. They invoke the general principle
that an insurer's only claim against a tortfeasor for the
insurer's costs arising out of wrongdoing against an insured
is by way of subrogation. See, e.g., Great Am. Ins. Co. v.
United States, 575 F.2d 1031, 1033 (2d Cir. 1978).
Generally, if an insurer wishes to recover from the
wrongdoer, it must assert the same claim--by way of
subrogation--that the insured could have asserted against
the wrongdoer, as well as be subject to the same defenses
that the wrongdoer could assert in defense of the claim. The
defendants argue that the Funds could seek to recover the
costs of treating participants' smoking-related illnesses only
through tort actions such as those that have been asserted
individually by smokers. Cf. Cipollone v. Liggett Group, Inc.,
505 U.S. 504 (1992).
2. The Direct Injury
In plaintiffs' submission, notwithstanding defendants'
argument that all of the Funds' claims are essentially
subrogation claims, their "direct" claim is a fundamentally
different legal claim from the typical insurer-against-
12
wrongdoer claim that falls under the principle of
subrogation. This direct claim is said to arise not only out
of a tortfeasor's actions toward an insured, but also from
its actions toward the insurance company (here the Funds)
itself. The traditional subrogation principle holds that an
" `insurer, upon paying to the assured the amount of a loss
of the property insured, is doubtless subrogated in a
corresponding amount to the assured's right of action
against any other person responsible for the loss.' " Great
Am. Ins. Co., 575 F.2d at 1034 (quoting W. Vance, Vance on
Insurance 787 n.2 (3d ed. 1951)). Here, the Funds are
essentially claiming that they paid for more than"the
property insured" (i.e., the health of fund participants)
because the defendants caused the Funds to expend
additional costs that would have been paid by the tobacco
companies (through reduced revenues and tort damages) if
they had not defrauded the Funds and conspired to cover
up their wrongdoing.
As the Funds frame their direct injury argument: "Had
defendants not undertaken their deceptive, fraudulent,
and anticompetitive activity, the Trusts' trustees,
administrators, and advisors could have taken counter-
measures against smoking and smoking-related illness and
would have commenced legal efforts much sooner and more
effectively to impose the costs resulting from tobacco use on
the tobacco companies." Appellants' Br. at 10. Plaintiffs'
complaint sets out this theory as follows:
Defendants' contract, combination, or conspiracy was
and is for the express purpose and effect of restraining,
suppressing and withholding information necessary to
medical care researchers, providers, and payers,
including Plaintiffs and members of the Class, so that
the costs of health care for tobacco-related illnesses
continue to be borne by health care providers and
payers, such as Plaintiffs and members of the Class,
[who] are injured in their business and property by,
among other things, having to provide or pay for the
health care costs of persons with tobacco-related
diseases without being reimbursed by Defendants.
Compl. P 256. Plaintiffs correctly observe that the District
Court did not address this alleged "direct" injury, but as is
13
clear from our discussion below, we do not find the
directness of the Funds' alleged injury dispositive of
whether they have stated a claim under either federal or
state law.
II. Plaintiffs' Federal Claims
A. Introduction
Plaintiffs' federal claims are based on the antitrust laws
and the RICO statute. In brief, they allege that defendants
conspired to withhold certain information and products
from the Funds, and fraudulently induced the Funds to
reimburse smokers for illnesses caused by the tobacco
companies' wrongdoing. We need not focus on many of the
necessary elements of these claims, such as the details of
the conspiracy and the fraud, whether the Funds (or
others) reasonably relied on the fraud, the predicate acts
for the RICO claims, etc. Rather, we focus on the issue of
proximate cause, a necessary element for bringing both
antitrust and RICO claims, and an element we find lacking
in plaintiffs' case.
Given the Supreme Court's determination that the
standing requirements for RICO and antitrust claims are
similar, and that the standing analysis under these federal
laws is drawn from common-law principles of proximate
cause and remoteness of injury, we analyze the key
remoteness issue for plaintiffs' federal claims under the
rubric of standing doctrine. See Holmes v. Securities
Investor Protection Corp., 503 U.S. 258, 268 (1992) (RICO);
Blue Shield v. McCready, 457 U.S. 465, 477 (1982)
(antitrust).
As is clear from our discussion below, the key problem
with plaintiffs' complaint is the remoteness of their alleged
injury from the defendants' alleged wrongdoing.
Remoteness is an aspect of the proximate cause analysis, in
that an injury that is too remote from its causal agent fails
to satisfy tort law's proximate cause requirement--a
requirement that the Supreme Court has adopted for
federal antitrust and RICO claims. Cf. McCready, 457 U.S.
at 477 ("In the absence of direct guidance from Congress,
14
and faced with the claim that a particular injury is too
remote from the alleged violation to warrant [antitrust]
standing, the courts are thus forced to resort to an analysis
no less elusive than that employed traditionally by courts at
common law with respect to the matter of `proximate
cause.' "). By subsuming the proximate cause requirement
under the concept of standing, the Supreme Court has
acknowledged that a private plaintiff might validly plead
(and even prove) that a defendant has committed an
antitrust violation, but still lack standing to enjoin or
remedy this violation if his own injury is too remotely
connected to it. Therefore, in discussing whether plaintiffs
have standing to bring their antitrust or RICO claims, we
will focus on proximate cause in general and on remoteness
in particular.
Plaintiffs' claims are largely grounded in allegations of
fraud on the part of defendants. Therefore, we would
normally focus initially, in addressing the federal claims in
this case, on the RICO claims, which are predicated on
alleged mail and wire fraud by the defendants. See Compl.
P 224(a). However, the Supreme Court has discussed
proximate cause more expansively in the antitrust context,
and has incorporated this discussion into its RICO
jurisprudence. See Holmes, 503 U.S. at 268-70. We
therefore begin our discussion of plaintiffs' federal claims
with an analysis of the Court's holdings in the antitrust field.4
_________________________________________________________________
4. As noted above, the District Court also dismissed plaintiffs' complaint
on the ground that the Funds have suffered no cognizable injury. See
Steamfitters, 1998 WL 212846, at *2-*3 (finding that any increased
expenses due to smoking-related illnesses of fund participants "merely
meant that the unions negotiated a greater level of contributions from
the employers"). We seriously doubt that this was an appropriate basis
for dismissing the complaint. The plaintiffs clearly could not go at will
to
the employers who funded their health plans for a replenishment any
time they needed more money. Increased costs likely necessitated
reduced expenditures in other areas, as well as reductions in the Funds'
reserves. Cf. Amicus Br. of UMWA Combined Benefit Fund at 22 (noting
that the Funds cannot "merely return to the inexhaustible well of
employers' bank accounts when the spigot for health benefits runs dry").
Simply because they are not the ultimate source of the money used to
pay for smoking-related illnesses does not mean that the Funds have
suffered no legally cognizable injury.
15
B. Antitrust Standing: Remoteness and Proximate Cause
In adopting a proximate cause requirement for antitrust
claims, the Supreme Court has explained that, despite the
broad language and remedial purpose of the antitrust laws,
"[i]t is reasonable to assume that Congress did not intend
to allow every person tangentially affected by an antitrust
violation to maintain an action to recover threefold damages
for the injury to his business or property." McCready, 457
U.S. at 477. In discussing the requirements for proximate
cause, the Court has repeatedly noted that "proximate
cause is hardly a rigorous analytic tool." Id. at 477 n.13;
see also Associated Gen. Contractors, Inc. v. California State
Council of Carpenters, 459 U.S. 519, 536-37 & n.34 (1983);
Merican, Inc. v. Caterpillar Tractor Co., 713 F.2d 958, 964
(3d Cir. 1983) ("Because of the infinite variety of claims that
arise under the antitrust statutes, [the Supreme Court] has
refused to fashion a black-letter rule for determining
standing in every case."). Therefore, the Court has
emphasized that lower courts should avoid applying bright-
line rules and instead should analyze the circumstances of
each case, focusing on certain key factors.
1. Blue Shield v. McCready
In McCready, the Court held that the primary factors for
evaluating proximate cause in an antitrust action were: (1)
_________________________________________________________________
The District Court also found that all of the Funds' claims are
essentially subrogation claims and therefore could not be brought under
the federal and state theories invoked in the complaint. See Steamfitters,
1998 WL 212846, at *1. Again, we do not necessarily agree with this
conclusion. As noted supra Part I.B.2, the Funds' claims of direct injury
are fundamentally different from a traditional insurer-against-wrongdoer
subrogation claim. They are said to arise not only out of the wrongdoer's
actions toward the insured, but also out of his actions directed at the
insurer in attempting to avoid the consequences of his misdeeds.
We need not resolve these issues, however, for we conclude that the
District Court correctly held that the Funds' alleged injuries are too
remote from any wrongdoing by the defendants to be redressable
through the RICO statute, the antitrust laws, or state common-law
theories of recovery.
16
"the physical and economic nexus between the alleged
[antitrust] violation and the harm to the plaintiff" and (2)
"more particularly, . . . the relationship of the injury alleged
with those forms of injury about which Congress was likely
to have been concerned in making defendant's conduct
unlawful and in providing a private remedy" under the
antitrust laws. McCready, 457 U.S. at 478. In discussing
these factors (and finding that the plaintiff in McCready had
standing to assert a claim under the antitrust laws), the
Court noted:
The availability of [an antitrust] remedy to some person
who claims its benefit is not a question of the specific
intent of the conspirators. Here the remedy cannot
reasonably be restricted to those competitors whom the
conspirators hoped to eliminate from the market.
McCready claims that she has been the victim of a
concerted refusal to pay on the part of Blue Shield,
motivated by a desire to deprive psychologists of the
patronage of Blue Shield subscribers. Denying
reimbursement to subscribers for the cost of treatment
was the very means by which it is alleged that Blue
Shield sought to achieve its illegal ends. The harm to
McCready and her class was clearly foreseeable;
indeed, it was a necessary step in effecting the ends of
the alleged illegal conspiracy. Where the injury alleged
is so integral an aspect of the conspiracy alleged, there
can be no question but that the loss was precisely the
type of loss that the claimed violations . . . would be
likely to cause.
Id. at 479 (emphases added) (omission in original) (internal
quotations omitted). The Funds allege that the defendants'
hiding of their knowledge of the dangers of smoking and
conspiring to keep safer tobacco products from the market
"was the very means by which [the tobacco companies]
sought to achieve [their] illegal ends" and the Funds'
payment of extra costs "was a necessary step in effecting
the ends of the alleged illegal conspiracy." Therefore, they
argue, their claims fit precisely within the rule of McCready.
We disagree. Unlike the defendants in McCready, the
tobacco companies could have achieved their alleged aims
without the existence of the Funds or the relationship
17
between the Funds and smokers. In McCready,
psychiatrists allegedly conspired with Blue Cross to exclude
psychologists from the psychotherapy market by
persuading Blue Cross to reimburse subscribers for this
service only when it was provided by a psychiatrist. The
reimbursement scheme was both the alleged conspiracy
and the cause of McCready's harm: McCready was a
psychotherapy patient denied reimbursement for her
treatment by a psychologist. If Blue Cross subscribers such
as McCready did not exist, a conspiracy between
psychiatrists and Blue Cross would never have come about
(as it would have been ineffective to achieve the alleged
aims of the conspiracy). Cf. Gregory Mktg. Corp. v. Wakefern
Food Corp., 787 F.2d 92, 96-97 (3d Cir. 1986) (holding that
plaintiff, a food broker for defendant manufacturer, had
suffered no antitrust injury because it was not a consumer
or competitor of defendant, and was not an "essential
participant" in defendant's scheme to price-discriminate
against certain retailers).
In contrast, the tobacco companies would have had
ample reason to engage in a conspiracy to prevent safer
tobacco products from coming on the market, regardless of
the relationship between the Funds and smokers. The very
existence of smokers would be a sufficient reason for such
an alleged conspiracy. The fact that the Funds reimbursed
smokers for their smoking-related illnesses might have
made the conspiracy more profitable or allowed it to exist
longer, but the relationship between the Funds and
smokers was not "a necessary step in effecting the ends of
the alleged illegal conspiracy."
It is for this reason that plaintiffs' reliance on Prudential
Insurance Co. of America v. United States Gypsum Co., 828
F. Supp. 287 (D.N.J. 1993), is also misplaced. In that case,
which also included allegations of fraudulent acts intended
to mislead consumers about the safety of defendants'
product (asbestos), the district court denied defendants'
motion for summary judgment on plaintiffs' RICO claims.
The court noted that "the fraud scheme directly targeted
entities like Prudential, [a real estate dealer,] for the fraud
would not have been worth it if large real estate dealers did
not continue to buy such buildings." Id. at 297. In addition,
18
the plaintiffs "stood to keep the defendants' products
valuable by continuing to buy buildings containing
defendants' products." Id. In the present case, the tobacco
companies' alleged fraud would still have been "worth it" if
the Funds and other health care payers did not reimburse
smokers for their illnesses.
In addition, the defendants' fraud in Prudential prevented
the building purchasers from obtaining information about
the dangers of asbestos--information that would have led
them to not purchase buildings containing this product. In
this case, however, even if the tobacco companies had not
prevented health care payers from discovering the dangers
of smoking, there is no claim that the Funds would have
chosen to not insure smokers. The defendants' conspiracy
in McCready and the defendants' fraud in Prudential would
have been without purpose or effect if the plaintiffs in those
cases did not use the services of the directly targeted
parties, psychologists and building contractors,
respectively. The same is not true in the present case.
2. Associated General Contractors
a. The Relevant Factors
Shortly after McCready was decided, the Supreme Court
provided further guidance in this area in Associated
General Contractors, Inc. v. California State Council of
Carpenters, 459 U.S. 519 (1983) [AGC]. In AGC, a union
sued a contractors' association on antitrust grounds,
alleging a conspiracy to force builders and contractors to
use primarily nonunionized subcontractors. The court of
appeals had framed the union's argument for antitrust
standing (which it had accepted) in much the same way
that the Funds frame their argument here: "In support of
the Union's standing, the [court of appeals] reasoned that
the Union was within the area of the economy endangered
by a breakdown of competitive conditions, not only because
injury to the Union was a foreseeable consequence of the
antitrust violation, but also because that injury was
specifically intended by the defendants." Id. at 525.
19
After discussing at length proximate cause principles
likely incorporated by Congress into the Sherman Act in
1890, see id. at 530-34 & nn.20-25,5 the Supreme Court
_________________________________________________________________
5. In addressing the key remoteness issue, the parties argue a good deal
about the meaning of footnote 25 in AGC, but we think they place too
much weight on the Court's citations therein to an 1882 treatise on
damages. The relevant paragraph of the footnote reads as follows:
In torts, a leading treatise on damages set forth the general
principle that, "[w]here the plaintiff sustains injury from the
defendant's conduct to a third person, it is too remote, if the
plaintiff
sustains no other than a contract relation to such a third person,
or
is under contract obligation on his account, and the injury
consists
only in impairing the ability or inclination of such person to
perform
his part, or in increasing the plaintiff 's expense or labor of
fulfilling
such contract, unless the wrongful act is willful for that
purpose."
Thus, A, who had agreed with a town to support all the town
paupers for a specific period, in return for afixed sum, had no
cause of action against S for assaulting and beating one of the
paupers, thereby putting A to increased expense. Similarly, a
purchaser under an output contract with a manufacturer had no
right of recovery against a trespasser who stopped the company's
machinery, and a creditor could not recover against a person who
had forged a note, causing diminution in the dividends from an
estate. 1 J. Sutherland, Law of Damages 55-56 (1882) (emphasis in
original, footnote omitted).
AGC, 459 U.S. at 532-33 n.25. Contrary to defendants' contention, the
Court appears to have quoted this excerpt from Sutherland as simply a
"general principle" and not as the outer limits of possible antitrust
liability. Further, while the first example cited appears to support the
tobacco companies' argument on remoteness, the allegations here are
more analogous to a situation in which A agreed to support all the town
paupers and S, after assaulting and beating a number of the paupers,
covered up his wrongdoing and affirmatively kept A from reducing its
costs of supporting the injured paupers. While we still question whether,
in Sutherland's view, A would have a cause of action against S under
this scenario, it is certainly a closer question than that raised by the
example in the excerpt.
On the other hand, plaintiffs place much weight on the qualifier at the
end of the internally quoted language, i.e., "unless the wrongful act is
willful for that purpose." Our view of the import of this qualifier,
however, is not the same as theirs, as we do not think a sentence
fragment in a single quotation in a Supreme Court footnote is sufficient
20
outlined a number of factors to consider in theflexible
antitrust standing analysis: (1) the causal connection
between defendant's wrongdoing and plaintiff's harm; (2)
the specific intent of defendant to harm plaintiff; (3) the
nature of plaintiff 's alleged injury (and whether it relates to
the purpose of the antitrust laws, i.e., ensuring competition
within economic markets); (4) "the directness or
indirectness of the asserted injury"; (5) whether the
"damages claim is . . . highly speculative"; and (6) "keeping
the scope of complex antitrust trials within judicially
manageable limits," i.e., "avoiding either the risk of
duplicate recoveries on the one hand, or the danger of
complex apportionment of damages on the other." Id. at
537-38, 540, 542-44.6
b. Applying the AGC Factors
i. Causation and Intent
Although the first two factors--a causal connection and
an intent to harm the plaintiff--were present in AGC, this
was insufficient to give the plaintiff antitrust standing. See
AGC, 459 U.S. at 537; see also Merican, 713 F.2d at 964
n.13 ("Claims that a defendant specifically intended to
harm the plaintiff, however, are not of controlling
significance. Although a defendant's improper motive may
_________________________________________________________________
to override the clear text of that opinion--text that squarely holds that
"an allegation of improper motive, although it may support a plaintiff 's
damages claim under S 4, is not a panacea that will enable any
complaint to withstand a motion to dismiss." Id. at 537 (footnote
omitted).
6. We take these "factors" from AGC's lengthy discussion of antitrust
standing. However, our prior cases have at times distilled Supreme Court
precedent in this area into a more succinct test:"To establish antitrust
standing a plaintiff must show both: 1) harm of the type the antitrust
laws were intended to prevent; and 2) an injury to the plaintiff which
flows from that which makes defendant's acts unlawful." Gulfstream III
Assocs., Inc. v. Gulfstream Aerospace Corp., 995 F.2d 425, 429 (3d Cir.
1993). In other cases, we have extracted five relevant factors from AGC.
See, e.g., Conte Bros. Automotive, Inc. v. Quaker State-Slick 50, Inc.,
165
F.3d 221, 233 (3d Cir. 1998); In re Lower Lake Erie Iron Ore Antitrust
Litig., 998 F.2d 1144, 1165-66 (3d Cir. 1993).
21
sometimes support a damages claim under S 4[of the
Clayton Act], it `is not a panacea that will enable any
complaint to withstand a motion to dismiss.' " (quoting
AGC, 459 U.S. at 537)). Plaintiffs urge us to focus on the
causal connection (proximate or otherwise) between the
tobacco companies' wrongdoing and the injury to the
Funds, as well as the companies' alleged specific intent to
foist the costs of their wrongdoing onto the Funds. As in
AGC, we do not find these factors to be dispositive on the
issue of antitrust standing. See also Gregory Mktg., 787
F.2d at 95 ("[N]either causation in this but-for sense nor an
allegation of improper motive is sufficient to `enable any
complaint to withstand a motion to dismiss.' " (quoting
AGC, 459 U.S. at 537)).
What is more, for the reasons set forth in the margin, it
is unclear whether there exists a causal connection
(proximate or otherwise) between any antitrust wrongdoing
on the part of the defendants and the Funds' alleged
injuries of increased health care expenditures.7 An
_________________________________________________________________
7. It is unclear from plaintiffs' complaint precisely what antitrust
wrongdoing they allege is connected to their own injuries. See, e.g.,
Compl. P 242 (alleging defendants engaged in the "anti-competitive
restriction of product choice and suppression of product information,"
thereby "restricting consumer choice, and causing consumers to suffer
tobacco-related illnesses"); id. P 246 ("Defendants also conspired to
eliminate competition among themselves in the research, development,
production and marketing of alternative, higher quality, and safer
cigarettes and tobacco products.").
A business's decision to not produce a product, simpliciter, is not a
violation of the antitrust laws, and it is not clear whether even a
concerted decision among all of the businesses in an industry to keep
one of their new products from reaching consumers would be an
antitrust violation. Cf. Oahu Gas Serv., Inc. v. Pacific Resources Inc.,
838
F.2d 360, 369 (9th Cir. 1988) ("A line of `product innovation' cases has
consistently rejected antitrust liability for a monopolist's decision
about
when or whether to market new products."); Foremost Pro Color, Inc. v.
Eastman Kodak Co., 703 F.2d 534, 544-46 (9th Cir. 1983). In Foremost
Pro, the court observed that a business's decision to delay introducing a
new product would not restrain competition, as consumers would still be
able to choose among existing products by that business or its
competitors. See id. at 545. The court went on to conclude:
22
agreement among competitors to suppress information on
the dangers of their product might constitute an antitrust
violation if the conspiracy artificially raised the price
consumers were willing to pay for the product. Here,
however, the plaintiffs do not allege (and could not
plausibly allege) that consumers' paying higher prices for
tobacco products injured the Funds. On the contrary, these
_________________________________________________________________
It is appropriate to emphasize that as a general rule, "any firm,
even a monopolist, may . . . bring its products to market whenever
and however it chooses." [Berkey Photo, Inc. v. Eastman Kodak Co.,
603 F.2d 263, 286 (2d Cir. 1979)]. Without more, it is not unlawful
for any competitor in any market to delay the introduction of a new
product or an entire line of new products until, as[plaintiff]
alleged
in this case, the competition forces such introduction. In order to
state a claim for relief under section 2 [of the Sherman Act],
product
introduction must be alleged to involve some associated conduct
which constitutes an anticompetitive abuse or leverage of monopoly
power, or a predatory or exclusionary means of attempting to
monopolize the relevant market, rather than aggressive competition
on the merits.
Id. at 545-46 (omission in original).
We do not decide here whether this reasoning holds true when
competitors--rather than a single monopolist--agree to "delay the
introduction of a new product or an entire line of new products," but it
is at least unclear whether such an agreement would constitute an
antitrust violation absent allegations that the delayed introduction of
the
product involved an attempt to artificially raise prices for existing
products, exclude non-conspiring competitors from a market, or
accomplish some other conventional anticompetitive effect. See, e.g.,
United States v. Container Corp. of Am., 393 U.S. 333, 335-37 (1969)
(noting that, while an agreement to exchange price information would be
a "conspiracy" under the Sherman Act, it would constitute an antitrust
violation only if it restrained trade, by, for example, limiting or
reducing
price competition); cf. American Tobacco Co. v. United States, 328 U.S.
781, 809 (1946) ("It is not the form of the combination or the particular
means used but the result to be achieved that the statute condemns.").
While we do not decide whether an agreement among competitors to
withhold a new product from a market would constitute an antitrust
violation, we assume for the sake of assessing plaintiffs' antitrust
standing that the conduct in which defendants allegedly engaged would
constitute such a violation.
23
higher prices more likely would have led fewer persons to
purchase the products, thereby decreasing the costs (and
injuries) to the Funds. Therefore, while there may be a
causal relationship between the conduct of the defendants
and the injuries alleged by the plaintiffs, we are uncertain
that these injuries are connected to any conduct of the
defendants that violates the antitrust laws. See supra note
7.
ii. Nature and Directness of Injury
In analyzing the third and fourth factors, the Court in
AGC observed that the plaintiff union was neither a
consumer (as the plaintiff in McCready was) nor a
competitor within the market that allegedly had been
restricted (i.e., the market for building subcontracts).
Further, its alleged harm was indirect because it claimed
that the defendants conspired to induce third parties to do
business with nonunion contractors instead of union
contractors, and the plaintiff union was harmed only
because it had contracts with the latter and not the former.
The Court concluded that "the Union is neither a
participant in the market for construction contracts or
subcontracts nor a direct victim of the defendants' coercive
practices." AGC, 459 U.S. at 540 n.44. This analysis
inveighs against plaintiffs' position.8 The Court's holding in
AGC that the union did not have standing also undercuts
the Funds' argument that the foreseeability of their injury
_________________________________________________________________
8. The Funds contend that there is an exception to the general rule that
an antitrust plaintiff be either a consumer or competitor of the
defendant's. See Appellants' Br. at 42-45. It is true that, drawing on
language from McCready, 457 U.S. at 483-84, we have sometimes
expressed the injury requirement in terms of the harm being
"inextricably intertwined" with the defendant's wrongdoing. See, e.g.,
Gulfstream III Assocs., 995 F.2d at 429 (holding that plaintiff's injury
may flow from defendant's wrongdoing if "there exists a `significant
causal connection' such that the harm to the plaintiff can be said to be
`inextricably intertwined' with the antitrust conspiracy" (citation to
McCready and other cases omitted)). The simple invocation of this
phrase, however, will not allow a plaintiff to avoid the fundamental
requirement for antitrust standing that he or she have suffered an injury
of the type--almost exclusively suffered by consumers or competitors--
that the antitrust laws were intended to prevent.
24
strongly favors our finding that proximate cause exists
here. See Appellants' Br. at 25. No doubt the defendants in
AGC foresaw that their conspiracy favoring nonunion
contractors would harm the unions that had contracts with
the target of the conspiracy--unionized contractors. Yet this
foreseeability was insufficient to overcome the remoteness
of the union's injury from the defendants' wrongdoing.
Our analysis of the first four AGC factors counsels
against recognition of the Funds' claims based simply on
indirect cost increases from smoking-related illnesses. The
Funds are not consumers forced to pay higher prices for
tobacco products or competitors harmed by defendants'
ability to conceal the unsafe nature of their products. They
are simply some of the many groups or individuals
suffering the financial or medical repercussions of the
decades-long marketing of a product that we now know is
demonstrably unsafe. Cf. Barton & Pittinos, Inc. v.
SmithKline Beecham Corp., 118 F.3d 178, 181 (3d Cir.
1997) ("If the injury is not of the requisite type, even though
the would-be plaintiff may have suffered an injury as a
result of conduct that violated the antitrust laws, he or she
has no standing to bring a private action under the
antitrust laws to recover for it.").
However, the Funds' claims of direct injury include
allegations that they were in the market for safer tobacco
products or for products that would reduce or prevent
people from smoking. Therefore, these claims might meet
the third factor from AGC. If the Funds were consumers in
a market for information and products that would have
reduced their expenditures (because they allegedly would
have provided the information and products to their
participants, some of whom would have smoked less and
become less ill), their asserted injuries--as consumers--
may be of the appropriate type.
The Funds' claims of direct injury might also meet the
fourth factor from AGC, which focuses on the directness or
indirectness of the alleged injury. Subsumed in the
"directness" factor is also the issue of whether other, more
directly injured parties could vindicate the policies
underlying the antitrust laws: "The existence of an
identifiable class of persons whose self-interest would
25
normally motivate them to vindicate the public interest in
antitrust enforcement diminishes the justification for
allowing a more remote party such as the Union to perform
the office of a private attorney general." AGC, 459 U.S. at
542. While more directly injured parties existed in AGC
(i.e., unionized subcontractors who were the target of the
boycott), this is not necessarily the case here. Smokers can
sue for personal injuries arising from smoking, but they are
unlikely (or unable) to press antitrust claims against the
tobacco companies.
Although we acknowledge that plaintiffs' claims of direct
injury appear, at least initially, to meet a number of the
first four AGC factors, we question whether these direct
injuries are necessarily more direct than the indirect
injuries on which much of our discussion has focused.
Under plaintiffs' direct theory, the tobacco companies'
conduct aimed at the Funds induced the Funds to not take
certain actions, which led to a greater incidence of smoking
(and of smokers using more dangerous products), which led
to more illness, which led to increased health care
expenditures being borne by the plaintiffs. Although the
alleged wrongdoing was more directly aimed at the Funds,
the injury itself certainly was no more direct than the
indirect injury that arose from the defendants' actions
toward smokers.
In another union fund case, a district court focused on
this alleged direct injury in partially denying the
defendants' motion to dismiss. In that case, the court
analogized the direct-injury claim to a hypothetical case in
which a defendant fraudulently induced health funds into
reimbursing participants for a dangerous medical
procedure that then harmed these participants. See New
Jersey Carpenters Health Fund v. Philip Morris, Inc., 17 F.
Supp. 2d 324, 332-33 (D.N.J. 1998). In such a case, the
court believed, the funds would have a cause of action
against the defendant for their economic damages caused
by the fund participants' use of the procedure that the
funds were wrongfully induced to cover.
We are not convinced, as the district court in New Jersey
Carpenters was, that this hypothetical case presents a
causation chain similar to the Funds' direct claim in the
26
present case. First, in the hypothetical case, the defendant
fraudulently induced the plaintiffs to spend money that
redounded directly to defendant's benefit (i.e., the funds
paid for the procedure that the defendant invented). In a
sense, this is no different than a garden-variety fraud case
in which the defendant hoodwinks the plaintiff into giving
him "money for nothing." In the present case, plaintiffs'
direct-injury claim is that the tobacco companies
fraudulently induced the Funds to not spend money (on
safer-smoking or smoking-cessation products) that, if
spent, would have diminished a separate revenue stream
(i.e., smokers' purchase of tobacco products) for the
defendants. We view this as an indirect connection. In
addition, in the New Jersey Carpenters hypothetical, the
fraud essentially induced the plaintiffs to enter into the
relationship that caused their injury: The defendant
induced the plaintiffs to "cover" the cost of defendant's
faulty procedure. In the present case, the relationship that
links the smokers' illnesses with the Funds already exists:
The plaintiffs are already (apart from anything the tobacco
companies do) "covering" the costs of the smokers'
illnesses. The alleged fraud simply prevents them from
reducing their expenses arising out of this preexisting
relationship.
Our belief that the plaintiffs' direct claim comes no closer
than their indirect claim to meeting the proximate cause
requirement for antitrust standing is supported by the
dearth of discussion of this allegedly unique claim in
plaintiffs' complaint and brief to this Court. See Appellants'
Br. at 21-22 (discussing "direct" injury); id. at 23-39
(discussing "indirect" injury); see also infra note 11 (noting
minimal allegations of "direct" injury in complaint). At all
events, as is clear from our extensive review of all of the
AGC factors, we find that however plaintiffs characterize
their claims--as direct or indirect--they necessarily fail for
being too remotely connected in the causal chain from any
wrongdoing on defendants' part.
iii. Speculativeness of Damages and Trial Complexity
We find that AGC's sixth factor does not militate against
a finding of antitrust standing, as there is little danger of
27
duplicative litigation9 or complex apportionment of damages
among various groups of plaintiffs.10 However, the Funds'
damages claims are quite speculative (and very difficult to
measure), implicating AGC's fifth factor. The Funds argue
that damages may be easily calculated by aggregation and
the application of statistical models. We question how easy
this process would be. The Funds' alleged damages are said
to arise from the fact that the tobacco companies prevented
the Funds from providing smoking-cessation or safer-
smoking information to their participants, some of whom
would have allegedly quit smoking or begun smoking safer
_________________________________________________________________
9. The defendants complain that allowing the Funds to recover for their
health care expenditures creates a danger of duplicative recovery in
general (if not duplicative antitrust or RICO damages), because of
Pennsylvania's collateral source rule. See, e.g. , Johnson v. Beane, 664
A.2d 96, 100 (Pa. 1995) ("The collateral source rule provides that
payments from a collateral source shall not diminish the damages
otherwise recoverable from the wrongdoer."). The collateral source rule,
however, is aimed at preventing a tortfeasor from benefitting from a third
party's payment to the injured party. If the tortfeasor himself has
already
paid a portion of the injured party's damages, his own liability is
correspondingly reduced. See, e.g., Restatement (Second) of Torts
S 920A(1) (1979). We are uncertain how this latter principle would apply
when the tortfeasor pays a portion of the injured party's damages
indirectly--i.e., through the third party payer's separate action against
the tortfeasor for recovery of the third party's payments to the injured
party. We need not predict whether Pennsylvania courts would apply the
collateral source rule in this context, however, as we do not rely on
defendants' invocation of the rule to support our holding.
10. However, to the extent that Fund participants have not been
reimbursed for certain health care expenditures or have suffered some
other pecuniary loss as a result of the tobacco companies' alleged
conspiracy, they could bring their own antitrust claims (as well as
personal injury claims) against the defendants. For example, as we noted
supra at 22-24 & note 7, it is possible that the defendants were able to
artificially increase the price of their products by conspiring to hide a
major defect in these products and by inducing consumers to buy their
products through fraudulent claims regarding their safety. While we have
questioned the Funds' ability to state a claim for higher priced tobacco
products, consumers who paid these higher prices would possibly be
able to bring an antitrust or RICO claim. Therefore, to some minimal
extent at least, an apportionment of damages between health care payers
and smokers might be necessary.
28
products, reducing their smoking-related illnesses, and
thereby lowering the Funds' costs for reimbursing smokers'
health care expenditures. In order to calculate the damages
--i.e., the costs not lowered due to the antitrust conspiracy
--the Funds must demonstrate how many smokers would
have stopped smoking if provided with smoking-cessation
information, how many would have begun smoking less-
dangerous products, how much healthier these smokers
would have been if they had taken these actions, and the
savings the Funds would have realized by paying out fewer
claims for smoking-related illnesses.
It is apparent why the Funds argue that they can
demonstrate all of this through aggregation and statistical
modeling: it would be impossible for them to do so
otherwise. Cf. Barnes v. American Tobacco Co., 161 F.3d
127, 143 (3d Cir. 1998) (affirming denial of class
certification in statewide smokers' suit, because "addiction,
causation, the defenses of comparative and contributory
negligence, the need for medical monitoring and the statute
of limitations present too many individual issues to permit
certification"). Yet we do not believe that aggregation and
statistical modeling are sufficient to get the Funds over the
hurdle of the AGC factor focusing on whether the "damages
claim is . . . highly speculative." AGC, 459 U.S. at 542.
In some litigation contexts, there is a meaningful
distinction between damages that are completely incapable
of determination and those that are difficult to determine
but are nonetheless measurable. In those contexts, if the
latter is the case, aggregation and statistical modeling may
be appropriate (though we need not decide that issue here)
to allow plaintiffs to overcome the difficulty of proving the
amount of damages. Cf. Hilao v. Estate of Marcos, 103 F.3d
767, 782-87 (9th Cir. 1996) (allowing use of aggregation
and statistical analysis to determine compensatory
damages). But cf. Arch v. American Tobacco Co., 175 F.R.D.
469, 493 (E.D. Pa. 1997) (rejecting use of statistical
evidence to overcome need to prove individual damages in
putative class action). In the present context, however, a
finding of antitrust standing must precede a finding of
liability, which itself precedes the assessment of damages.
Therefore, the fact that "once liability is established,
29
plaintiff's proof of damages will be evaluated under a more
lenient standard," Danny Kresky Enters. v. Magid, 716 F.2d
206, 212 (3d Cir. 1983), does not eliminate from our
analysis of the AGC factors the speculative (though
potentially measurable) nature of plaintiffs' damages. This
speculativeness strongly militates against plaintiffs'
position.
iv. The AGC Factors Applied: Summary
Against this somewhat lengthy background, we can now
summarize our review of the AGC factors in this case: First,
some causal connection appears to exist between the
conduct of the tobacco companies and the injury suffered
by the plaintiff Funds--though we doubt that this
connection links some antitrust wrongdoing with an
antitrust injury. Second, plaintiffs have alleged, if barely,
that the defendants' conspiracy specifically targeted them,
though for the most part their complaint alleges that the
plaintiffs were targeted along with "consumers, state and
federal governments, medical and health care entities, and
the public at large." Compl. P 244.11 Third, at least some
aspect of the plaintiffs' alleged injury--their inability to
obtain and use information on the dangers of smoking or
on smoking-cessation methods--may be of the type that the
antitrust laws are intended to prevent, i.e., the restriction of
consumer choices, which leads to increased costs for these
consumers. However, the tenuous causal connection, the
sketchy allegations of defendants' intent to target the
Funds, and the minimal extent to which plaintiffs' injuries
relate to the purposes of the antitrust laws are all
_________________________________________________________________
11. Plaintiffs rely, both in attempting to distinguish their claims from
traditional subrogation claims and in their efforts to avoid the import of
AGC, on the alleged direct targeting of the Funds by the tobacco
companies. Yet, we find scant mention of this direct targeting in
plaintiffs' lengthy complaint and, when specifically asked by us to cite
portions of the complaint that address this aspect of their case,
plaintiffs
could muster only three arguably relevant paragraphs (out of 317). See
Appellants' Letter Br. of Jan. 25, 1999, at 2. While plaintiffs urged us,
at oral argument, to remand so that they might amend their complaint
to include more specific allegations of direct targeting by the
defendants,
see Tr. of Oral Argument at 18-19, we decline to do so, as the possibly
inadequate pleading is not a factor in our holding.
30
substantially outweighed by the fourth AGC factor, the
indirectness of the asserted injury.
The sheer number of links in the chain of causation that
connect the defendants' suppression of information on the
dangers of their products and withholding of safer tobacco
products from the market to the Funds' increased
expenditures are greater than in any case we canfind in
which this court or the Supreme Court has found antitrust
standing. These alleged links include the following: (1) the
tobacco companies engaged in a conspiracy to suppress
information and withhold products from the market; (2) the
Funds were prevented from informing their members about
the dangers of smoking and the availability of less
dangerous products; (3) smokers continued to smoke
dangerous tobacco products that they would not have
otherwise used (or would have used less); (4) smokers
contracted more smoking-related illnesses; and,finally, (5)
the Funds suffered increased expenses due to their
reimbursement of smokers' health care costs.
As to the final two AGC factors, there is only a slight
possibility of duplicative antitrust recoveries or problems
apportioning antitrust damages, because smokers are
unlikely to make their own antitrust claims based on
increased health care expenditures. However, the Funds'
damages claims are highly speculative and would entail
complex calculations potentially involving numerous
individuals not party to this case, i.e., Fund participants
who do smoke or have smoked in the past.
The short of it is that, while we find that the plaintiffs'
antitrust claims barely meet certain AGC factors, the
fulfillment of these factors is greatly outweighed by the
extremely indirect nature of the Funds' injuries and the
highly speculative and complex damages claims. The
tortured path that one must follow from the tobacco
companies' alleged wrongdoing to the Funds' increased
expenditures demonstrates that the plaintiffs' claims are
precisely the type of indirect claims that the proximate
cause requirement is intended to weed out. Cf. Palsgraf v.
Long Island R. Co., 162 N.E. 99, 103 (N.Y. 1928) (Andrews,
J., dissenting) ("What we do mean by the word `proximate'
is that, because of convenience, of public policy, of a rough
31
sense of justice, the law arbitrarily declines to trace a series
of events beyond a certain point.").
What is more, in proposing a solution to the speculative
nature of their damages--i.e., using aggregation and
statistical modeling to measure damages--the Funds focus
too far down the road to assist their case for standing: The
task of accurately measuring damages can be approached
only after a plaintiff has met the requirements for standing
and has proven liability. While we do not doubt that the
Funds have paid out more in health care expenditures than
they would have in the absence of tobacco products,
"Congress did not intend to allow every person tangentially
affected by an antitrust violation to maintain an action to
recover threefold damages for the injury to his business or
property." McCready, 457 U.S. at 477.
3. Lower Lake Erie
Our own precedent that provides the most support for
plaintiffs' antitrust claim is In re Lower Lake Erie Iron Ore
Antitrust Litigation, 998 F.2d 1144 (3d Cir. 1993). In that
case, the district court dismissed for lack of antitrust
standing one of plaintiffs' claims that was based on a
theory similar to that put forth by plaintiffs here. The
plaintiffs, various steel manufacturers and transportation
companies, alleged that certain railroad companies
conspired "to preclude potential competitors from entering
the market of lake transport, dock handling, storage and
land transport of iron ore." Id. at 1151. The steel
companies' claim that was dismissed was "based on the
theory that had the conspiracy not delayed the use of self-
unloading vessels, the steel companies would have paid
vessel companies a lower rate for lake transportation." Id.
at 1154. The district court found that this claim failed,
reasoning that "because the steel companies were only
potential customers of non-conspiring competitors, (the
vessel companies), damages could be ascertained only by
speculating when the vessel companies would have begun
using self-unloaders absent a conspiracy. Assessment of
damages would also require additional conjecture related to
the rates the private docks would have charged to handle
the self-unloaders." Id.32
After analyzing the factors from AGC, we disagreed with
the district court's conclusion. First, we found that a direct
causal relationship existed between the defendants'
wrongdoing and the steel companies' alleged harm:
"[D]elayed . . . introduction of the more efficient self-
unloader . . . caused loss of the profits which would have
been realized had the less costly transport system been in
place," and "it was unquestionably the steel companies who
bore the brunt of the increased costs attributed to the
railroad's agreement to thwart development of the less
expensive technology." Id. at 1168.12 This matches closely
the Funds' theory in the present case: Delayed introduction
of safer tobacco products caused higher costs than they
would have faced had these products been allowed to enter
the market, and it was health care payers who bore the
brunt of the increased costs attributed to the tobacco
companies' agreement to thwart development of safer
tobacco products.
There is a key difference, however. In Lower Lake Erie,
the use of more expensive unloaders--made necessary by
the defendants' wrongdoing--caused a loss of profits for the
plaintiffs without any intervening events.13 The inability to
use cheaper unloaders, in and of itself, caused the
plaintiffs' damages. Here, the alleged conspiracy that
delayed introduction of safer tobacco products only caused
damages to the plaintiff Funds after working its way
_________________________________________________________________
12. We also found that the steel companies had alleged injuries of the
type the antitrust laws were intended to prevent and that the existence
of other parties with similar injuries did not "diminish the directness of
the steel companies' injury." Lower Lake Erie, 998 F.2d at 1168-69. Our
ultimate holding was that the plaintiffs' damages, arising from the
conspirators' exclusion of lower-cost means of transportation from the
market, conferred antitrust standing on the steel companies.
13. We note another key difference between Lower Lake Erie and the
present case. In Lower Lake Erie, the defendants did not simply conspire
to delay their own introduction of a new product, as is alleged here.
Rather, they engaged in archetypal antitrust conduct (price-fixing,
boycotts, refusals to sell, etc.) in order to prevent other parties in the
unloader market from introducing and using self-unloaders. See Lower
Lake Erie, 998 F.2d at 1153-54. There was no question, therefore, that
specific antitrust wrongdoing could be linked to specific antitrust
injury.
Cf. supra note 7.
33
through another party (i.e., smokers) and at least two more
steps: First, without safer products or information on
smoking-cessation, smokers continued to smoke dangerous
tobacco products. Next, these smokers became more ill
than they otherwise would have without the tobacco
companies' alleged conspiracy. Only at this point did the
Funds allegedly suffer damages from the increased costs of
the smokers' illnesses.
This distinction between Lower Lake Erie and the present
case illustrates the most fundamental flaw in plaintiffs'
claims. The injuries that they allegedly suffered from
defendants' wrongdoing are simply too remote from that
wrongdoing to be cognizable under the antitrust laws. The
causal links that plaintiffs must connect in order to make
their case are just too numerous and too speculative to
meet the requirements of AGC and of the Supreme Court's
and this court's other antitrust precedents.
C. RICO Claims: Holmes v. SIPC
In Holmes v. Securities Investor Protection Corp., 503 U.S.
258 (1992), the Supreme Court held that its discussion of
proximate cause and remoteness in cases such as
McCready and AGC applied to the analysis of proximate
cause in RICO cases as well. See Holmes, 503 U.S. at 268;
see also McCarthy v. Recordex Serv., Inc., 80 F.3d 842, 855
(3d Cir. 1996) ("Significantly, antitrust standing principles
apply equally to allegations of RICO violations."). Therefore,
much (if not all) of what we have said above in our
discussion of antitrust standing applies to the Funds' RICO
claims. We discuss here, however, the specific requirements
for stating a claim under RICO, to better explicate our
reasons for finding that all of plaintiffs' claims must fail for
being too remote and speculative.
In Holmes, the Court addressed the directness inquiry
when it explained that "a plaintiff who complained of harm
flowing merely from the misfortunes visited upon a third
person by the defendant's acts was generally said to stand
at too remote a distance to recover." Holmes, 503 U.S. at
268-69. This was primarily because (1) the more indirect
the injury, "the more difficult it becomes to ascertain the
34
amount of a plaintiff's damages attributable to[defendant's
wrongdoing], as distinct from other, independent, factors";
(2) allowing recovery by indirectly injured parties would
require complicated rules for apportioning damages; and (3)
direct victims could generally be counted on to vindicate
the policies underlying the relevant law. Id. at 269-70.
1. Directness of the Injury
The plaintiff in Holmes alleged that the defendants had
conspired to manipulate certain stock prices, which led to
losses for brokers, which led to the brokers' inability to
return investments of customers who had not bought the
manipulated stock.14 In the present case, the tobacco
companies are in the position of the stock manipulators in
Holmes, while the smokers--the third party linking the
plaintiffs and defendants--are in the same position as the
brokers; the plaintiff Funds, who suffered a loss because of
the harm that the defendants brought upon the third party,
are in the same position as the brokers' customers who did
not invest in the manipulated stock.15 The Supreme Court
_________________________________________________________________
14. The plaintiff in Holmes was actually a private nonprofit corporation,
the Securities Investor Protection Corporation ("SIPC"), which was
required by federal law to reimburse the losses of certain investors.
After
paying for the losses of investors who had not invested in the defrauded
securities, the SIPC asserted claims against those engaged in the fraud,
as a subrogee. In discussing the causation chain in Holmes, we omit this
additional link, as the SIPC stood in the investors' shoes for purposes of
its claims.
15. In the present case, the allegations of fraud and conspiracy directed
at the Funds themselves might make the Funds more like the brokers'
customers who did buy the manipulated stock. The Court in Holmes
noted that these customers might have a RICO claim against the
defendants, though it declined to reach this issue. See Holmes, 503 U.S.
at 272 n.19. We note, however, that the defrauded investors in Holmes
would have been able to allege direct injury from the fraud (i.e., their
losses derived directly from the fraud, without any intervening links),
while the Funds here, even if they were direct targets of the tobacco
companies' fraud, did not suffer damages until this fraud prevented
them from encouraging their participants to smoke less or not at all,
which led to an increased incident of smoking-related illnesses, which in
turn led to the Funds' increased expenses. See supra at 26-27.
35
in Holmes held that the causal connection between the
nonpurchasing investors and the stock manipulators was
too attenuated for the plaintiffs to have RICO standing.
The Court reasoned as follows: "If the nonpurchasing
customers were allowed to sue, the district court would first
need to determine the extent to which their inability to
collect from the broker-dealers was the result of the alleged
conspiracy to manipulate, as opposed to, say, the broker-
dealers' poor business practices or their failures to
anticipate developments in the financial markets." Id. at
272-73. Applied to the present case, if the Funds are
allowed to sue, the court would need to determine the
extent to which their increased costs for smoking-related
illnesses resulted from the tobacco companies' conspiracy
to suppress health and safety information, as opposed to
smokers' other health problems, smokers' independent (i.e.,
separate from the fraud and conspiracy) decisions to
smoke, smokers' ignoring of health and safety warnings, etc.16
As in Holmes, this causation chain is much too speculative
and attenuated to support a RICO claim.
2. Apportionment of Damages and Vindication by Oth ers
As noted above, the Court in Holmes expressed two
further concerns (in addition to the directness factor) that
supported its conclusion that nonpurchasing investors did
not have standing: (1) the court would need to apportion
treble damages between the brokers and the nonpurchasing
customers, and (2) the brokers could vindicate the RICO
claims themselves. See id. at 273. As we noted in our
discussion of the Funds' antitrust claims, more directly
injured parties, i.e., smokers, would be unlikely to bring
_________________________________________________________________
16. While this complex determination militates against allowing the
Funds to bring their remote claim, it addresses one of defendants'
objections, that allowing the Funds (rather than smokers) to bring claims
for smoking-related illnesses would nullify the defendants' traditional
defenses, such as assumption of risk and comparative negligence. These
defenses presumably would be available in the present case, in the sense
that smokers' own wrongdoing (or ignoring of known risks) would be a
factor in establishing and measuring the link between the tobacco
companies' actions and the Funds' damages.
36
federal claims against the tobacco companies for the same
damages claimed by the Funds. Yet, as we also noted
above, Fund participants who have not been fully
reimbursed for their out-of-pocket costs that are traceable
to defendants' alleged fraud and conspiracy might bring
RICO or antitrust claims. Therefore, as in Holmes, a court
adjudicating the Funds' RICO claims would need to
consider the appropriate apportionment of damages
between smokers and others such as the Funds who
suffered economic losses as a result of the tobacco
companies' alleged fraudulent acts.
It is true that the final concern--that another party could
better vindicate the RICO claims--may not be as fully
applicable to this case as to Holmes because the Funds
allege that they suffered far greater economic damages than
smokers themselves, many of whom were reimbursed for
their direct pecuniary losses. Yet we are unconvinced that
this distinction is sufficient to overcome the concerns about
apportioning damages and, most fundamentally, the
remoteness of the Funds' alleged RICO injuries from any
wrongdoing on the part of the tobacco companies. Cf.
Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d
494, 521 (3d Cir. 1998) (finding RICO standing when
defendant targeted plaintiff 's contractual partner,
plaintiff's injury arose from loss of that contract, and that
contractual relationship "was a direct target of the alleged
scheme--indeed, interference with that relationship may
well be deemed the linchpin of the scheme's success").17
_________________________________________________________________
17. Because of our conclusion that plaintiffs' RICO and common-law
fraud claims fail for lack of proximate cause, we need not reach
defendants' alternative argument that these claims were not pled with
sufficient particularity. See Fed. R. Civ. P. 9(b) ("In all averments of
fraud
. . ., the circumstances constituting fraud . . . shall be stated with
particularity."). We note, however, that plaintiffs' allegations are
fairly
general in nature and do not include "specific allegations as to which
fraudulent tactics were used against" specific plaintiffs. Rolo v. City
Investing Co. Liquidating Trust, 155 F.3d 644, 659 (3d Cir. 1998). On the
other hand, we have cautioned that courts should "apply the rule with
some flexibility and should not require plaintiffs to plead issues that
may
have been concealed by the defendants," id. at 658, as is alleged to have
happened here.
37
D. Summary of Federal Claims
At this point in contemporary history, there can be little
doubt that the tobacco companies' products have caused
smokers to contract certain illnesses and that the plaintiff
Funds (and others) have borne some of the costs of these
illnesses by reimbursing their participants for their health
care expenditures. It is therefore quite possible that some of
these health care providers and payers have had to cut
back on their coverage of other medical problems in order
to fund the costs of smoking-related illnesses, causing
other Fund participants to pay out-of-pocket expenses they
otherwise would not have paid. It also may be the case that
unions and their members have been forced to accept lower
wage increases or to forgo benefit improvements in order to
achieve contract settlements with employers that included
sufficient contributions to the Funds to pay for smoking-
related illnesses. All of these parties--non-smoking Fund
participants, unions, union members, employers--can
claim to have suffered some injury arising out of the
tobacco companies' conduct. At some point, however, the
causal link between defendants' actions and the negative
effects that eventually result is not proximate enough to
meet the prudential requirements for antitrust or RICO
standing. In this case, for the reasons set forth supra at 17-
37, we believe that this necessary proximate-cause
connection is missing.18 Therefore, plaintiffs' federal claims
based on alleged violations of the antitrust laws and the
RICO statute were properly dismissed by the District Court.
_________________________________________________________________
18. There is arguably a tension between our decision here that the
tobacco companies cannot be held liable for the damages suffered by
entities that paid for smoking-related illnesses, and the fact that these
same tobacco companies recently agreed to pay more than $200 billion
to settle claims brought by attorneys general for the states' similar
costs
of their citizens' smoking-related illnesses. We note in this regard that
an
explanation for the putative tension may be found in any number of
places, including state laws conferring standing and broad rights of
recovery on states for wrongdoing against their citizens or their coffers,
as well as the political power of governmental bodies--and the threat of
legislative action--that is lacking in this case brought by private
entities.
We need not, of course, engage these matters here.
38
III. Plaintiffs' State-Law Claims
The same principles that lead us to conclude that
plaintiffs' antitrust and RICO claims were properly
dismissed lead to the inevitable conclusion that their state-
law claims must also fail.
A. Fraudulent Misrepresentation
While the District Court dismissed the Funds' remaining
claims for the same reasons it found the antitrust and
RICO claims wanting, i.e., lack of proximate cause and lack
of cognizable injury, it also dismissed them for claim-
specific reasons. The District Court found plaintiffs' state-
law fraud claims too speculative to be cognizable. See
Steamfitters, 1998 WL 212846, at *3. Just as we have
found the link between defendants' alleged fraud--providing
false information regarding the safety of their products--
and plaintiffs' alleged injuries too attenuated to support a
RICO claim, we also find the link too remote to support a
common-law fraud claim. See Gibbs v. Ernst, 647 A.2d 882,
889 (Pa. 1994) (requiring proximate cause as an element of
fraudulent misrepresentation claim); see also Crawford v.
Pituch, 84 A.2d 204, 207 (Pa. 1951) (holding that
recoverable damages in a fraud case do not include those
that are "consequential, speculative and even conjectural,"
but "only such as can be said to have been the immediate
and proximate consequences of the deceit practiced upon
the plaintiffs").19 For this reason, we agree with the District
_________________________________________________________________
19. We recently held that a common-law fraud claim might succeed
despite the fact that the fraudulent misrepresentation was made to a
third party (as is true in the present case for the Funds' claims of
indirect injury). See In re Orthopedic Bone Screw Prods. Liab. Litig., 159
F.3d 817 (3d Cir. 1998). In Orthopedic Bone Screw, we held that "the
mere fact that the alleged fraudulent misrepresentation was made to [a
third party] and not the plaintiffs does not necessarily preclude a
finding
of legally sufficient causation," id. at 826, when the plaintiffs alleged
that
fraud on the third party (a government agency) led to approval of
products that then were used by plaintiffs and caused them injuries. Id.
at 827. We also held that a misrepresentation claim is not necessarily
precluded when the alleged injury arises from a third party's (and not
the plaintiff 's) reliance on defendant's misrepresentations. See id. at
39
Court that plaintiffs cannot maintain their state fraud
claims.
B. Injunctive Relief
If the plaintiffs have antitrust standing for their damages
claim, they almost certainly would have standing to seek
injunctive relief, as the standard is lower for such a claim.
See McCarthy, 80 F.3d at 856 (only proximate cause and
"threatened loss or injury cognizable in equity" are required
for injunctive relief under the antitrust laws). However, as
we have detailed above, the necessary element of proximate
cause is missing and therefore, just as plaintiffs lack
standing to seek damages for their alleged injuries, they
lack antitrust standing for equitable relief as well.20
C. Special Duty
The defendants maintain, and the District Court held,
that a special-duty claim in Pennsylvania requires
averments of physical injury. Whether or not this view is
correct (and we take no position on it),21 we conclude that
plaintiffs' special-duty claim too must fail.
_________________________________________________________________
828-29. These holdings, however, do not help plaintiffs in the present
case. Even if the fact that the tobacco companies' misrepresentations
were made primarily to smokers is not sufficient to defeat the common-
law fraud claims, the harm that flowed from this fraud is much more
attenuated than that in Orthopedic Bone Screw, in which the plaintiffs
were directly harmed by their use of a product that was only available
because of the defendants' misrepresentations to the third party.
20. This court has yet to decide whether injunctive relief is available
for
a private party under RICO. See Northeast Women's Ctr., Inc. v.
McMonagle, 868 F.2d 1342, 1355 (3d Cir. 1989). Other circuits are split
on this issue. See Conkling v. Turner, 18 F.3d 1285, 1296 & n.8 (5th Cir.
1994) (detailing circuit split). Given the lack of proximate cause in this
case, the remoteness of plaintiffs' alleged injury from defendants'
alleged
wrongdoing, and our holding that plaintiffs' damages claims do not
survive defendants' motion to dismiss, we need not reach this issue in
the present case.
21. The Pennsylvania Superior Court case relied on by the District Court
and the defendants for the proposition that a special-duty claim requires
40
Special-duty claims arise most often in the context of the
provision of public or commercial services. See, e.g., Yates
v. City of Philadelphia, 578 A.2d 609, 611 (Pa. Commw. Ct.
1990) ("[A] special relationship is found only where an
individual is exposed to a special danger and the
authorities have undertaken the responsibility to provide
adequate protection for him or her . . . ."); Restatement
(Second) of Torts S 323 (1965) ("One who undertakes,
gratuitously or for consideration, to render services to
another which he should recognize as necessary for the
protection of the other's person or things, is subject to
liability to the other for physical harm resulting from his
failure to exercise reasonable care to perform his
undertaking, if (a) his failure to exercise such care
increases the risk of such harm, or (b) the harm is suffered
because of the other's reliance upon the undertaking."); see
also Morena v. South Hills Health Sys., 462 A.2d 680, 684
(Pa. 1983) (adopting Restatement section 323(a) as the
applicable law in Pennsylvania).
Converting a company's marketing into a special
undertaking to inform the public about the known risks of
its products would subject every manufacturer that
advertises its products to liability for a "special duty"
created by such marketing, and that duty would be violated
by every material omission in such advertising. We are
unwilling to so dramatically extend the scope of liability for
a state-law cause of action. Cf. DeJesus v. Liberty Mut. Ins.
Co., 223 A.2d 849, 850 (Pa. 1966) (holding that no special
duty arises from workers' compensation insurance
company's "advertising material representing that it
provides loss prevention service and safety counsel to its
policyholders" when plaintiff-worker did not aver that "the
advertisements were part of any contract or other legal
obligation undertaken by [the insurance company] or that
_________________________________________________________________
allegations of personal physical injury did not so hold. See Lower Lake
Dock Co. v. Messinger Bearing Corp., 577 A.2d 631, 635 (Pa. Super. Ct.
1990) (noting that prior Pennsylvania cases applying the special-duty
rule did so only when there was physical injury or damages to property
other than the allegedly defective one). We believe that the law on this
issue is more uncertain in Pennsylvania than the defendants claim.
41
they adversely affected [the plaintiff]"). 22 Finally, a special-
duty claim is effectively a negligence cause of action, and
therefore requires the element we have found missing from
plaintiffs' case, proximate cause. See Morena, 462 A.2d at
684 & n.5 (noting that the plaintiff in a special-duty case
must still prove the underlying elements of a negligence
claim, including proximate cause).
D. Unjust Enrichment
Unjust enrichment is typically invoked in a quasi-
contractual setting, when plaintiff seeks to recover from
defendant for a benefit conferred under an unconsummated
or void contract. See, e.g., Zvonik v. Zvonik, 435 A.2d 1236,
1239-40 (Pa. Super. Ct. 1981); cf. Meehan v. Cheltenham
Township, 189 A.2d 593, 595 (Pa. 1963) (noting that unjust
enrichment is an equitable remedy, requiring for recovery
that there be both "(1) an enrichment, and (2) an injustice
resulting if recovery for the enrichment is denied").
In the tort setting, an unjust enrichment claim is
essentially another way of stating a traditional tort claim
(i.e., if defendant is permitted to keep the benefit of his
tortious conduct, he will be unjustly enriched). As the
Restatement of Restitution puts it:
The desirability of permitting restitution in [tort] cases
is ordinarily not so obvious as in the cases where there
has been no tort since the tortfeasor is always subject
to liability in an action for damages and . . . the right
to maintain an action for restitution in such cases is
largely the product of imperfections in the tort
remedies, some of which imperfections have now been
removed.
Restatement of Restitution S 3 cmt. a (1937); see also id. at
ch. 7 introductory note ("Actions of tort are ordinarily not
restitutionary . . . . They are based primarily upon
wrongdoing and ordinarily, through the payment of money,
_________________________________________________________________
22. Of course, a company's failure to inform consumers about the known
risks of its products would be relevant to the duty-to-warn aspect of a
products liability claim. See Restatement (Second) of Torts S 402A cmt.
j (1965).
42
compensate the injured person for the harm suffered by
him as a result of the wrongful conduct, irrespective of the
receipt of anything by the defendant."). We can find no
justification for permitting plaintiffs to proceed on their
unjust enrichment claim once we have determined that the
District Court properly dismissed the traditional tort claims
because of the remoteness of plaintiffs' injuries from
defendants' wrongdoing.23
For the foregoing reasons, the District Court's judgment
dismissing plaintiffs' complaint in its entirety will be
affirmed.
_________________________________________________________________
23. The District Court did not specifically address plaintiffs' strict
liability, negligence, and breach-of-warranty claims, but these claims
fail
as well, for each requires a proximate connection between the
defendants' conduct and the plaintiffs' injuries, a connection we find
missing in this case. See, e.g., Davis v. Berwind Corp., 690 A.2d 186,
190 (Pa. 1997) ("To recover under [strict liability], a plaintiff must
establish . . . that the defect was a proximate cause of the plaintiff 's
injuries . . . ."); Skipworth ex rel. Williams v. Lead Indus. Ass'n, 690
A.2d
169, 172 (Pa. 1997) ("Pennsylvania . . . follows the general rule that a
plaintiff, in order to recover, must establish that a particular
defendant's
negligence was the proximate cause of her injuries."); AM/PM Franchise
Ass'n v. Atlantic Richfield Co., 584 A.2d 915, 923 n.12 (Pa. 1990) ("As
with all cases involving breach of warranty, the plaintiff is charged with
the burden of proving that the defendant's breach is the proximate cause
of the harm suffered.").
43
Appendix
Government Bodies as Plaintiffs
Arizona v. American Tobacco Co., No. CV-96-14769 (Ariz.
Super. Ct. May 27, 1997) (denying motion to dismiss)
Idaho v. Philip Morris, Inc., No. CV-OC-97-03239*D (Idaho
Dist. Ct. Sept. 2, 1998) (denying motion to dismiss
consumer protection claims, but dismissing antitrust,
nuisance, and conspiracy claims)
Illinois v. Philip Morris, Inc., No. 96L 13146 (Ill. Cir. Ct. Nov.
13, 1997) (denying motion to dismiss state antitrust,
negligence, and civil conspiracy claims, but dismissing
special duty, nuisance, and unjust enrichment claims)
Indiana v. Philip Morris, Inc., No. 49D07-9702-CT-003236
(Ind. Super. Ct. July 23, 1998) (dismissing conspiracy,
antitrust, unjust enrichment, indemnity, assumed duty,
criminal mischief, and nuisance claims)
Iowa ex rel. Miller v. Philip Morris, Inc., 577 N.W.2d 401(Iowa 1998) (affirming dismissal of deception, special
duty, and indemnity claims)
County of Los Angeles v. R.J. Reynolds Tobacco Co., No.
707651 (Cal. Super. Ct. Dec. 23, 1997) (dismissing
breach of warranty, fraud, strict liability, and negligence
claims with leave to amend), petition for review granted,
No. S068747, 1998 Cal. LEXIS 2475 (Cal. Apr. 22, 1998)
Maryland v. Philip Morris, Inc., No. 96122017, 1997 WL
540913 (Md. Cir. Ct. May 21, 1997) (denying motion to
dismiss consumer protection and antitrust claims, but
dismissing unjust enrichment, special duty, fraud,
breach of warranty, negligence, strict liability, and
conspiracy claims with leave to amend)
City & County of San Francisco v. Philip Morris, Inc., 957 F.
Supp. 1130 (N.D. Cal. 1997) (dismissing RICO, negligent
misrepresentation, special duty, warranty, and unjust
enrichment claims with leave to amend), and No. C-96-
2090 DLJ, 1998 WL 230980 (N.D. Cal. Mar. 3, 1998)
(denying motion to dismiss fraud and certain special duty
claims, but dismissing other special duty claims)
44
Texas v. American Tobacco Co., 14 F. Supp. 2d 956 (E.D.
Tex. 1997) (denying motion to dismiss RICO claims, but
dismissing antitrust, unjust enrichment, and nuisance
claims)
Washington v. American Tobacco Co., No. 96-2-15056-8
SEA, 1996 WL 931316 (Wash. Super. Ct. Nov. 19, 1996),
and 1997 WL 714842 (Wash. Super. Ct. June 6, 1997)
(denying motion to dismiss state antitrust claims, but
dismissing special duty and unjust enrichment claims)
Union Funds as Plaintiffs
Hawaii Health & Welfare Trust Fund for Operating Eng'rs v.
Philip Morris, Inc., No. 97-00833 SPK (D. Haw. Jan. 25,
1999) (dismissing RICO, antitrust, false advertising, and
special duty claims)
International Bhd. of Teamsters Local 734 Health & Welfare
Trust Fund v. Philip Morris, Inc., __ F. Supp. 2d __, Nos.
97-C-8113 & -8114, 1998 WL 849528 (N.D. Ill. Dec. 1,
1998) (dismissing antitrust, special duty, strict liability,
negligence, breach of warranty, fraud, unjust enrichment,
and conspiracy claims)
Iron Workers Local Union No. 17 Ins. Fund v. Philip Morris,
Inc., 23 F. Supp. 2d 771 (N.D. Ohio 1998) (denying
motion to dismiss RICO, antitrust, and conspiracy
claims)
Kentucky Laborers Dist. Council Health & Welfare Trust
Fund v. Hill & Knowlton, Inc., 24 F. Supp. 2d 755 (W.D.
Ky. 1998) (denying motion to dismiss some RICO and
deceit claims, but dismissing other RICO claims and
antitrust, fraud, special duty, and unjust enrichment
claims)
Laborers & Operating Eng'rs Util. Agreement Health &
Welfare Trust Fund v. Philip Morris, Inc., No. CIV 97-1406
PHX SMM (D. Ariz. Feb. 10, 1999) (dismissing RICO,
antitrust, fraud, assumed duty, and unjust enrichment
claims)
Laborers Local 17 Health & Benefit Fund v. Philip Morris,
Inc., 7 F. Supp. 2d 277 (S.D.N.Y.) (denying motion to
45
dismiss fraud, special duty, and RICO claims, but
dismissing unjust enrichment and antitrust claims),
interlocutory appeal granted, 7 F. Supp. 2d 294 (S.D.N.Y.
1998), appeal docketed, No. 98-7944 (2d Cir. argued Feb.
4, 1999)
National Asbestos Workers Med. Fund v. Philip Morris, Inc.,
23 F. Supp. 2d 321 (E.D.N.Y. 1998) (denying motion to
dismiss RICO, unjust enrichment, indemnity, and
assumed duty claims)
New Jersey Carpenters Health Fund v. Philip Morris, Inc., 17
F. Supp. 2d 324 (D.N.J. 1998) (denying motion to dismiss
certain fraud and RICO claims, but dismissing antitrust,
special duty, and unjust enrichment claims)
New Mex. & West Tex. Multi-Craft Health & Welfare Trust
Fund v. Philip Morris, Inc., No. CV-97-09118 (N.M. Dist.
Ct. Dec. 24, 1998) (dismissing all claims)
Northwest Laborers-Employers Health & Sec. Trust Fund v.
Philip Morris, Inc., No. C97-849WD (W.D. Wash. Dec. 23,
1998) (denying motion to dismiss)
Operating Eng'rs Local 12 Health & Welfare Trust v.
American Tobacco Co., No. BC 177968 (Cal. Super. Ct.
July 9, 1998) (dismissing strict liability, special duty,
breach of warranty, restitution, and unjust enrichment
claims without leave to amend, and dismissing fraud and
conspiracy claims with leave to amend)
Operating Eng'rs Local 324 Health Care Fund v. Philip
Morris, Inc., No. 97-741291 CZ (Mich. Cir. Ct. Feb. 12,
1999) (dismissing all claims)
Oregon Laborers-Employers Health & Welfare Trust Fund v.
Philip Morris, Inc., 17 F. Supp. 2d 1170 (D. Or. 1998)
(dismissing antitrust, RICO, consumer protection, unjust
enrichment, indemnity, assumed duty, and conspiracy
claims)
Seafarers Welfare Plan v. Philip Morris, Inc., 27 F. Supp. 2d
623 (D. Md. 1998) (dismissing RICO, antitrust, tort,
consumer protection, and unjust enrichment claims)
Southeast Fla. Laborers Dist. Health & Welfare Trust Fund
v. Philip Morris, Inc., No. 97-8715-CIV-RYSKAMP, 1998
46
WL 186878 (S.D. Fla. Apr. 13, 1998) (dismissing fraud,
special duty, unjust enrichment, RICO, and antitrust
claims)
Stationary Eng'rs Local 39 Health & Welfare Trust Fund v.
Philip Morris, Inc., No. C-97-01519 DLJ, 1998 WL 476265(N.D. Cal. Apr. 30, 1998) (denying motion to dismiss
negligent breach of special duty claim, but dismissing
fraud claims with leave to amend, and dismissing RICO,
antitrust, intentional breach of special duty, unfair trade,
and unjust enrichment claims without leave to amend)
Steamfitters Local Union No. 420 Welfare Fund v. Philip
Morris, Inc., __ F.3d __, No. 98-1426 (3d Cir. Mar. 1999)
(affirming dismissal of RICO, antitrust, fraud, special
duty, unjust enrichment, strict liability, negligence, and
breach of warranty claims)
Texas Carpenters Health Benefit Fund v. Philip Morris, Inc.,
21 F. Supp. 2d 664 (E.D. Tex. 1998) (dismissing RICO,
antitrust, tort, breach of warranty, and unjust
enrichment claims)
West Va. Laborers' Pension Trust Fund v. Philip Morris, Inc.,
No. 3:97-0708 (S.D. W. Va. Aug. 12, 1998) (denying
motion to dismiss)
West Va.-Ohio Valley Area I.B.E.W. Fund v. American
Tobacco Co., No. 2:97-0978 (S.D. W.Va. Aug. 11, 1998)
(denying motion to dismiss)
Other Health Care Payers as Plaintiffs
Minnesota v. Philip Morris, Inc., 551 N.W.2d 490 (Minn.
1996) (affirming denial of motion to dismiss state
antitrust, consumer protection, and equitable claims, but
dismissing tort claims)24
Regence Blue Shield v. Philip Morris, Inc., No. C98-559R,
1999 U.S. Dist. LEXIS 1820 (W.D. Wash. Jan. 6, 1999)
(dismissing RICO, antitrust, fraud, special duty, unjust
enrichment, and conspiracy claims)
_________________________________________________________________
24. --Although the State of Minnesota is the nominal plaintiff in this
case, the state supreme court's decision addressed only those claims
brought by Blue Cross.
47
Williams & Drake Co. v. American Tobacco Co., No. 98-553
(W.D. Pa. Dec. 21, 1998) (dismissing RICO, antitrust,
consumer protection, fraud, special duty, indemnity, and
unjust enrichment claims brought by self-insured
employer)
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
48