# Schwab v. Philip Morris USA, Inc.

> District Court, E.D. New York · September 25, 2006 · 449 F. Supp. 2d 992

URL: https://www.frixlaw.com/law-library/cases/2509140

## Case

- **Full name:** Barbara SCHWAB Et Al., Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. PHILIP MORRIS USA, INC., R.J. Reynolds Tobacco Co., Brown & Williamson Tobacco Corp., Lorillard Tobacco Co., Ligget Group, Inc., American Tobacco Co., Altria Group, Inc., British American Tobacco (Investments) Ltd., Defendants
- **Court:** District Court, E.D. New York
- **Decided:** September 25, 2006
- **Citations:** 449 F. Supp. 2d 992; 2006 U.S. Dist. LEXIS 73196; 2006 WL 2726102
- **Precedential status:** Published
- **Opinion:** Opinion by Weinstein
- **Judges:** Weinstein
- **Cited by:** 47 later opinions in the Frix Law Library

## Citator (automated)

- **Red flag:** Reversed on other grounds by McLaughlin v. American Tobacco Co., 522 F.3d 215 (2008).
- Negative treatments: 1
- Distinguished by: 0
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/2509140

## How later opinions describe it (automated extraction)

- holding that plaintiffs’ misrepresentation claim under the Illinois Consumer Fraud Act based on defendants’ use of the terms “Lights” and “Lowered Tar and Nicotine” is “wholly unrelated to any failure to warn claim and, therefore, not preempted.”
- recognizing that Basic is “neither binding in this case, nor identical in reasoning,” but holding that “[s]uch a presumption may be appropriate in the present ease”

## Opinion text

MEMORANDUM & ORDER
WEINSTEIN, Senior District Judge.
TABLE OF CONTENTS
I. Introduction................ 1018
II. Allegations..............................................................1025
A. Burden of Proof................................'.....................1025
1. Class Certification..............................’.................1025
2. Summary Judgment .............................................1025
B. Sources of Proof........................................... 1026
C. Overview of the Conspiracy and Fraud.................................1028
D. Other “Light” Cigarette Fraud Actions .. .•................'.............1029
III. Racketeer Influenced and Corrupt Organizations Act.........................1031
A. Violation of Criminal RICO......................i.. i.................1032
1. Conduct of a Racketeering Enterprise (§ 1962(c))....................1032
a. Enterprise.................................................1032
b. Conduct..............................••....................1033
c. Racketeering activity........................................1033
d. Pattern....................:............................... 1034
2. Conspiracy (§ 1962(d))..........................-.................1035
a. Cofacredit.................................................1035
b. Supreme Court precedent....................................1036
c. Subsequent decisions of the Second Circuit and district courts----1038
d. Other circuits..............................................1038
e. Conclusion on conspiracy requirements........................1039
B. Injury to Property ..............................................: • ■ ■ 1039
1. Law ...........................................................1039
2. Defendants’ Motion for Summary Judgment on Injury................1039
a. Proprietary injury..........................................1040
b. Personal injury.............................................1042
3. Conclusion on Injury.............................................1043
C. Causation and Reliance..............................................1043
1. Law ...........................................................1043
a. Factual causation...........................................1043
b. Proximate causation....................:....................1043
c. Reliance.............. 1044
i. Reliance is required.....................................1044
ii. Role of reliance ........................................1045
(a) Direct reliance......................................1045
(b) Third-party reliance.................................1045
d. Transaction causation and loss causation.......................1045
2. Defendants’ Motion for Summary Judgment on Causation.............1046
a. Reliance...................................................1046
i. Plaintiffs’ claims of reliance..............................1046
ii. Reliance showing required in this case.....................1047
iii. Plaintiffs have demonstrated reliance......................1048
b. Indirect purchaser rule......................................1050
i.
Illinois
Brick..........'................................1052
ii. Inapplicability of
Illinois Brick
rule.......................1053
3. Conclusion on Causation..........................................1056
D. Computation of Total Damages ....................".......■............1056
*1014
1. Plaintiffs’ Models................................................1057
a. “Loss of market” model......................................1057
b. “Loss of value” model.......................................1057
c. “Price impact” model........................................1058
2. Law ...........................................................1058
a. Practice under common law..................................1058
b. Practice under securities law.................................1059
i. 1933 Act...............................................1060
ii. 1934 Act...............................................1060
(a) Explicit rights of action..............................1060
(b) Implied rights of action..............................1060
c. Practice under antitrust law..................................1061
3. Application of Law to Facts.......................................1063
a. Appropriate measure........................................1063
b. Degree of precision required.................................1065
4. Equitable Relief.................................................1067
5. Conclusion on Computation of Total Damages.......................1067
E. Statute of Limitations................................................1067
1. Law ...........................................................1067
a. Accrual....................................................1068
b. Equitable tolling............................................1068
2. Procedural History..............................................1068
3. Application of Law to Facts.......................................1070
a. Actual knowledge...........................................1070
b. Imputed knowledge.........................................1070
i. Class counsel’s knowledge...............................1071
ii. Class members’ knowledge ..............................1072
e. Separate accrual............................................1074
d. Equitable tolling............................................1074
4. Conclusion on Statute of Limitations...............................1075
IV. Collateral Estoppel......................................................1076
A. Law...............................................................1076
B. Preclusive Effect in Possible Future Bodily Injury Cases.................1076
C. Claim Splitting......................................................1077
D. Preclusive Effect of
United States v. Philip
Morris......................1077
E. Preclusive Effect of Overlapping Class Actions..........................1079
V. Defendants’ Other Summary Judgment Motions.............................1079
A. Mutagenicity of “Light” Cigarettes....................................1079
B. Defendant BATCo’s Separate Motion for Summary Judgment on All
Claims...........................................................1080
1. Extraterritoriality of RICO.......................................1081
a. Law.......................................................1081
b. Application of law to facts....................................1081
2. BATCo’s Liability...............................................1082
a. BATCo’s conduct of the enterprise............................1082
b. BATCo’s participation in the conspiracy.......................1083
c. Damages..................................................1083
d. BATCo’s association with Brown & Williamson.................1083
3. Conclusion on BATCo’s Separate Motion ...........................1084
C. Defendant Philip Morris’ Separate Motion for Summary Judgment on
All Claims After November 2002 ....................................1084
1. Facts ..........................................................1084
a. PM USA’s disclosures.......................................1084
b. Plaintiffs’ “concession” ......................................1085
2. Law ...........................................................1086
3. Application of Law to Facts.......................................1086
a. Absence of a scheme to defraud...............................1086
*1015
b. Reasonable reliance.........................................1087
c. Judicial estoppel............................................1088
d. Findings on continued increases in nicotine inhaled from “light” cigarettes .........................................1089
4. Conclusion on Philip Morris’ Separate Motion.......................1089
VI. Plaintiffs’ Motions for Summary Judgment..................................1089
A. FTC Defense.......................................................1089
1. Facts ..........................................................1089
a. FTC action ................................................1089
b. Procedural history..........................................1091
2. Law...............................................:...........1092
3. Application of Law to Facts.......................................1092
a. “New” evidence ............................................1092
b. Defendants’ stated position...................................1093
4. Conclusion on FTC Defense.......................................1094
B. Compensation Defense...............................................1094
C. Compliance with Public Health Community Defense.....................1096
D. Meaning of “Lights” Descriptor.......................................1097
VII. Plaintiffs’ Motion for Class Certification....................................1097
A. Class Certification Under Rule 23 .....................................1097
1. Burden of Proof.................................................1097
2. Purpose of Rule 23...............................................1098
B. Rule 23(a) Prerequisites..............................................1101
1. Numerosity.....................................................1101
a. Law.......................................................1101
b. Application of law to facts....................................1101
2. Commonality....................................................1101
a. Law.......................................................1101
b. Application of law to facts....................................1103
3. Typicality.......................................................1104
a. Law.......................................................1104
i. Unique defenses........................................1104
ii. Subclasses.............................................1105
b. Application of law to facts....................................1105
4. Adequacy of Representation ......................................1106
a. Law.......................................................1106
i. Class counsel ..........................................1106
ii. Class representatives lacking interests antagonistic to the class.............................................1107
iii. Other factors...........................................1108
(a) Knowledge of the case and ability to supervise counsel..........................................1108
(b) Credibility of representatives.........................1109
b. Application of law to facts....................................1109
i. Named plaintiffs........................................1109
ii. Proposed class counsel..................................1112
C. Rule 23(b)(2): Injunctive or Declaratory Relief..........................1112
1. Law ...........................................................1112
2. Application of Law to Facts.......................................1113
D. Rule 23(b)(3): Money Damages.......................................1114
1. Law ...........................................................1114
a. Predominance of common questions of law or fact...............1114
i. Violation of RICO mail or wire fraud......................1115
ii. Causation and reliance..................................1115
(a) General proof of reliance.............................1115
(b) Individual proof of reliance...........................1117
iii. Injury to property and damages..........................1119
*1016
b. Superiority ................................................1120
2. Application of Law to Facts.......................................1121
a. Class action is superior method of adjudication .................1121
b. Common questions of law or fact predominate..................1123
i. Reliance...............................................1124
ii. Injury to property and damages..........................1127
iii. Statute of limitations....................................1130
E. Rule 23(g): Adequacy of Class Counsel ................................1131
F. RICO and Class Certification.........................................1131
G. Conclusion on Certification of Class....................................1131
VIII. Admissibility of Expert Evidence..........................................1132
A. Motions Regarding Admissibility of Expert Reports.....................1132
B. Rules 702 and 703 of the Federal Rules of Evidence .....................1132
C. Qualifications of Expert Witnesses.....................................1133
D. Helpfulness and Relevance...........................................1133
E. Reliability..........................................................1135
F. Individual Experts’ Reports..........................................1137
1. Challenges to Plaintiffs’ Experts...................................1138
a. John C. Beyer..............................................1138
b. David M. Burns ............................................1149
e. Joel B. Cohen..............................................1150
d. K. Michael Cummings.......................................1153
e. Michael J. Dennis...........................................1157
f. Robbin Derry..............................................1159
g. Marvin E. Goldberg.........................................1159
h. Jeffrey Harris..............................................1163
i. John R. Hauser.............................................1166
j. Katherine Kinsella..........................................1170
k. Matthew L. Myers..........................................1172
l. Blaine F. Nye..............................................1177
m. Richard W. Pollay..........................................1184
n. Robert N. Proctor..........................................1193
o. Paul Slovic.................................................1209
p. Joseph E. Stiglitz...........................................1215
2. Challenges to Defendants’ Experts.................................1221
a. Michael Dixon..............................................1221
b. Jeffery Gentry.............................................1222
c. Jane E. Lewis..............................................1222
d. Arnold T. Mosberg..........................................1223
e. Kenneth R. Podraza.........................................1224
f. Graham A. Read............................................1225
g. Edward A. Robinson........................................1225
h. William Wecker ............................................1226
3. Minor or No Challenges to Plaintiffs’ and Defendants’ Experts........1226
a. Neal L. Benowitz...........................................1226
b. Michael F. Borderding......................................1227
c. Gregory N. Connolly........................................1227
d. Richard Cox ...............................................1227
e. Wayne S. Desaro...........................................1227
f. Peter C. English............................................1227
g. Barry E. Goodstadt.........................................1227
h. Stephen Heeht.............................................1228
i. Lucy L. Henke.............................................1228
j. Jack E. Henningfield........................................1228
k. Jacob Jacoby...............................................1228
l. James A. Langenfeld........................................1228
m. Nancy A. Mathiowetz .......................................1229
n. Kenneth A. Mundt..........................................1229
*1017
o. Kevin M. Murphy...........................................1230
p. Bruce Neidle...............................................1230
q. Bruce M. Owen.............................................1230
r. Stanley Presser ............................................1231
s. Michael Schaller............................................1231
t. George Seiden..............................................1231
u. Peter G. Shields............................................1232
v. David W. Stewart...........................................1232
w. Charles R. Taylor...........................................1233
x. Michael Thun..............................................1233
y. Peter A. Valberg ...........................................1233
z. W. Kip Viscusi .............................................1234
aa. Errol Zeiger...............................................1234
G. Plaintiffs’ Motion to Exclude Expert Testimony that “Light” Cigarettes are Safer.........................................................1236
H. Defendants’ Motion to Exclude Expert Evidence of Impact of Marketing of “Light” Cigarettes on Smoking Rates....................1236
1. Relevance ......................................................1236
2. Reliability......................................................1236
I. Defendants’ Motion to Exclude Expert Testimony Regarding Mutagenicity of “Light” Cigarettes..................................1239
J. Further Rulings as Case Develops.....................................1239
IX. Management Issues......................................................1239
A. Aggregate Proof....................................................1239
1. Federal Rules of Civil Procedure and Evidence......................1241
2. Appropriateness of Sampling and Survey Techniques.................1244
3. Due Process....................................................1246
4. Jury Right......................................................1248
B. Distribution of Any Damages.........................................1251
1. Fluid Recovery..................................................1252
a. Nature and use.............................................1252
b. Interaction with procedural and substantive law................1254
c. General law................................................1255
2. Second Circuit Law on Fluid Recovery.............................1260
3. Application of Law to Facts.......................................1268
a.
Eisen
and
Van
Gemert......................................1269
b. Due process and Seventh Amendment issues...................1270
c. Rules Enabling Act.........................................1271
4. Conclusion on Fluid Recovery.....................................1272
C. Allocation of Damages Among Defendants..............................1272
1. National Common Law...........................................1273
2. Joint and Several Liability........................................1273
3. Market Share...................................................1274
4. Other Systems..................................................1276
X. Certification of Interlocutory Appeal.......................................1276
XI. Stay...................................................................1277
XII. Conclusion..............................................................1277
Appendix A:
United States v. Philip
Morris.......................................1278
Appendix B:
Blue Cross & Blue Shield of New Jersey v. Philip
Morris................1278
Appendix C:
Price v. Philip Morris
..............................................1279
Appendix D:
In re Simon II
Litigation...........................................1298
*1018
Appendix E: Monograph 13 ............................ 1298
Appendix F: Report of Massachusetts Department of Health 1351
I. Introduction
Tobacco has been woven into the fabric of American history and society since the 1620’s when, as the first cash crop, it saved the colony of Virginia and then, together with cotton, established the economic base for slavery. Edmund S. Morgan,
American Slavery, American Freedom, The Ordeal of Colonial Virginia
112, 310 (Francis Parkman Prize Ed., 2005).
In more recent times, through cigarettes — produced and allegedly fraudulently merchandised on a massive scale — it has become the basis for a pandemic, causing the premature deaths of tens of millions of Americans. This case represents one event in this long narrative: the alleged successful effort of defendants to cozen smokers into continuing to buy their products by convincing them that smoking “light” cigarettes was safer for their health.
It is plaintiffs’ view that this campaign caused smokers to buy “light” cigarettes, in large amounts, at a price greater than they would have paid had the truth been acknowledged by defendants. Defendants’ acts, plaintiffs contend, constituted a violation of the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. §§ 1961
jf,
warranting trebled money damages. 18 U.S.C. § 1964 (c). Class action status is sought to bring to bear, on a consolidated basis, the weight of all United States smokers’ claims.
It is charged- — with substantial evidence to support the contention — that plaintiff smokers bought cigarettes characterized as “light,” on the suggestion of defendants — the major cigarette manufacturers — that they were less harmful than “regular” cigarettes, when in fact they were at least as dangerous and defendants knew of their dangers. The claim is that the carcinogenic and other adverse effects smokers sought to avoid were not reduced by smoking “light” rather than other cigarettes; that defendants knew this was the case; that they concealed this fact; that they urged plaintiffs — through advertising and other public statements — to smoke these “lights” knowing smokers were being misled; and that they defrauded purchasers of billions of dollars spent for light cigarettes worth less than their purchase price.
On behalf of a prospective class, the named plaintiffs seek class certification pursuant to Federal Rules of Civil Procedure 23(a) and 23(b)(2) and (3) on behalf of the class of persons defined as:
All United States residents who purchased in the United States, not for resale, cigarettes labeled as “Lights” and/or “Light” (collectively “light cigarettes”) that were manufactured and/or sold by Defendants during the period commencing on the first date that Defendants began selling light cigarettes until the date trial commences (the “Class Period”), and who are not, as of the date of trial, members of a certified state class seeking economic damages stemming from their purchases of light cigarettes or having obtained an award of, or a denial of, such damages. Excluded from the Class are individuals who are directors and officers of the Defendants’ corporations, their parents, subsidiaries and/or affiliates.
This litigation is another in the continuing battle of plaintiffs’ lawyers and their clients with the cigarette industry. While
*1019
limited success by smokers in some suits— and the cost of litigating — have probably had some deterrent effect on aggressive marketing of a product defendants now partly acknowledge to be dangerous, this, and other suits like it, probably have had only a minimal value in reducing what even defendants now concede are the enormous costs to public health of widespread cigarette smoking. More effective in alleviating smoking dangers are probably such legislative and administrative efforts as prohibiting smoking in public and commercial areas, and raising prices, primarily through taxes. Nevertheless, where a cigarette smoker can demonstrate that he or a group of smokers has been damaged by the cigarette industry, the help of the court in resolving the claim and defenses is mandatory. The independent political-economic arrangement defendants made with the states to pay them billions of dollars over many years has not compensated smokers for the individual damages they have allegedly suffered.
Early in our history the Supreme Court ruled that a federal court must decide cases properly brought. It:
must take jurisdiction if it should. The judiciary cannot, as the legislature may, avoid a measure because it approaches the confines of the constitution. We cannot pass it by because it is doubtful. With whatever doubts, with whatever difficulties, a case may be attended, we must decide it, if it be brought before us. We have no more right to decline the exercise of jurisdiction which is given, than to usurp that which is not given. The one or the other would be treason to the constitution. Questions may occur which we would gladly avoid; but we cannot avoid them.
Cohens v. Virginia,
19 U.S. 264 , 6 Wheat. 264, 404 , 5 L.Ed. 257 (1821).
While “the federal courts may, in their discretion, [in some narrowly specified classes of cases,] properly withhold the exercise of the jurisdiction conferred upon them where there is no want of another suitable forum,”
Massachusetts v. Missouri
308 U.S. 1, 19 , 60 S.Ct. 39 , 84 L.Ed. 3 (1939), the choice in the present case under the federal RICO statute is not between a United States district court and some other forum, but between this court and no effective forum at all.
Plaintiffs have proposed an elegant analysis of the law and facts as a rationale for certifying this litigation as a class action. Their claim is that they, and a class consisting of tens of millions of smokers, were induced by fraud to buy a kind of cigarettes, “lights,” and that they suffered financial damage because they did not get what they thought they were getting — a more valuable, safer cigarette. By relying on federal substantive statutes — the combined “RICO” and Mail and Wire Fraud Acts, 18 U.S.C. §§ 1341 , 1343 — they seek to avoid one of the serious difficulties with national class cigarette actions: the tort law in the fifty states is not uniform.
They also propose to avoid the other main problem with smokers’ class actions: conduct and motive differences among members of the class. Individuals start and quit smoking and choose various types of cigarettes for different reasons and suffer wide variations in possible harm, creating different specific causation and damage issues attributable to each class member. If plaintiffs’ experts are to be credited in the testimony promised by plaintiffs’ counsel, economic loss of value in purchases of cigarettes allegedly touted as “lighter” when they are not safer avoids this problem of human diversity: first, by the equivalent of statistical averaging and, second, should the jury determine total damages to the class, division of the damages
*1020
based on claims of smokers for the relative number of cigarettes they bought during the applicable liability period, with unclaimed proceeds to be distributed on a cy pres basis.
Defendants, by contrast, in powerful briefs and arguments, point to what they believe are critical defects in the plaintiffs’ case on the facts and the law requiring not only denial of class certification, but dismissal of the case. They contend that they committed no fraud, that the statute of limitations has run, and that class action procedures are not applicable. Accordingly, they move to dismiss and to deny class certification.
In considering the matter as it now stands, two powerful factors should be kept in mind: First, is the jury’s constitutional role and its vast discretion in evaluating evidence in a civil suit of this kind under Amendment VII of the United States Constitution. The jury’s power and capacity to deal with complex -facts and come to a reasonable resolution of a dispute should not be underestimated.
Second, is the power of the American legal system to overcome a defense that plaintiffs’ claims are so enormous in scope and time, and in diverse persons affected, that they can never be fairly adjudicated in a reasonably comprehensive and relatively inexpensive way. In this connection it is well to recall a central theme of our American legal system:
ubi jus, ibi remedi-um
— each right has a remedy. Every violation of a right should have a remedy in court, if that is possible.
The very essence of civil liberty certainly consists in the right of every individual to claim the protection of the laws, whenever he receives an injury. One of the first duties of government is to afford that protection____
“[I]t is a general and indisputable rule, that where there is a legal right, there is also a legal remedy by suit or action at law, whenever that right is invaded.” ...
“[Ejvery right, when withheld, must have a remedy, and every injury its proper redress.” The government of the United States has been emphatically termed a government of laws, and not of men. It will certainly cease to deserve this high appellation, if the laws furnish no remedy for the violation of a vested legal right.
Marbury v. Madison,
5 U.S. 137 , 1 Cranch 137, 163 , 2 L.Ed. 60 (1803) (quoting 3 William Blackstone, Commentaries 23, 109).
In modern times, at least since adoption of the Federal Rules of Civil Procedure and Evidence, the ancient maxim is modified to read, “each violation of a right should have a practicable remedy.” A remedy that is impracticable in execution is — for those whose legal rights have been violated- — no remedy at all. Procedures developed through American class action jurisprudence should not be frustrated when a large number of small claims can be aggregated and tried in a way fair to both plaintiffs and defendants. Current widespread partial acknowledgment by defendants of the dangers of their product and alleged efforts to reduce smoking by minors and others does not negate any liability for past delicts not subject to the statute of limitations.
Resolution of many of the factual disputes in the case depends upon widely divergent possible inferences that may be drawn from a huge amount of already available evidence of activities by defendants and members of the putative class. While the American jury has been more and more controlled by devices such as summary judgment, the strong policy embodied in Amendment VII, and the pre
*1021
sumption that the system can provide a practical remedy for a widespread violation of a right, requires allowing jurors to draw necessary operative factual conclusions wherever reasonable minds could differ.
In the instant case the wisdom embodied in the Constitution is reflected in the ability of a fair cross section of the community to appreciate and understand evidence of why people smoke, why they do it in certain ways, and what impact actions and policies of defendants in such matters as advertising have had in influencing behavior. The federal petty civil jury provides the ultimate focus group of the law.
In deciding the balance between plaintiffs and defendants, the scale tips heavily in the instant case in favor of allowing a jury rather than a judge to decide the case. Here, in a litigation that arguably might go either way on inferences and facts, the Constitution and basic principle point to certification of the class, allowing the matter to proceed before a jury in a way that is practicable. Denial of motions to dismiss and to exclude relevant and reliable proof, scientific and otherwise, will permit the jury to decide the dispute fairly.
Whether plaintiffs can overcome the defendants’ objections to then- proof is subject to trial by jury. There is enough merit to both plaintiffs’ and defendants’ contentions to permit the litigation to go forward. If, as contended by plaintiffs, a huge fraud was perpetrated on tens of millions of people causing them billions of dollars in loss — measured largely by the difference between the value people were led to believe they were getting when they bought “light” cigarettes for safety, and what they received, a non-safe product— recovery dependent on proof should be allowed. The extensive evidence introduced on preliminary motions supports certification of the class and denial of defendants’ motions for summary judgment.
While evidence of fraud on the class appears to be quite strong — and defendants have been less than candid in insisting that there was no fraud — evidence of the percentage of the class which was defrauded and the amount of economic damages it suffered appears to be quite weak — and plaintiffs have been less than candid in failing to acknowledge that deficiency in their proof.
The court in
United States v. Philip Morris,
449 F.Supp.2d 1 (D.D.C.2006), described in Part II.D,
infra
and excerpted in Appendix A,
supra,
has estimated that some fifty percent of those who smoked “light” cigarettes would not have done so had they known the truth.
See
Appendix A at 449 F.Supp.2d at 280 ,
supra.
This estimate, strongly relied on by plaintiffs in argument,
see
Transcript of Sept. 13, 2006, at 52:5-13, 157:22-159:7, does not fill the gap in their proof since, even if the court was right in
United States v. Philip Morris,
a significant portion of that fifty percent might have smoked other types of cigarettes purchased at the same price “lights” were selling for. Contrasting the real diverse universe of “lights” smokers with the countérfactual universe of fully advised “lights” smokers to determine the impact of the fraud on the size of the market and its nature for damage purposes is a daunting enterprise even with the many proffered experts holding up their statistical lanterns to help in the search for the truth.
There is considerable merit to defendants’ experts’ position that many, if not all, the plaintiffs would have bought these light cigarettes' even if they knew they provided no health advantage over regular cigarettes, and that they received full value for their money. There are also serious
*1022
objections to the plaintiffs’ plan to divide any damages based on the relative number of cigarettes claimed to have been bought by claimants during the period found applicable by the jury, with cy pres division of the remainder. This form of fluid recovery tends — like almost all aggregate litigation — to overcompensate some and un-dercompensate other members of the class who may have relied differently on the “lights” designation and may have acted differently and for different reasons relevant to damages. Nevertheless, serious and unique factual-substantive issues now presented can be resolved by the jury with the aid of experts and statistical proof. If plaintiffs are right, they should not be fobbed off by real and imagined barriers of proof and management problems that can be circumvented in a fair adjudication.
Essentially, the issue before the court is not whether a fraud case be proven, but whether damages can be proven for the period since each smoker started smoking, failed to stop, switched to, or started with “lights” rather than the standard cigarettes in vogue up to the introduction of “lights” on a large scale. That introduction to “light” smoking and encouragement of continued use by defendants was allegedly in response to a widespread, fright induced by the Surgeon General’s reports and other warnings of hundreds of thousands of deaths caused yearly by cancer attributable to smoking.
Plaintiffs have demonstrated that they may be able to produce sufficient proof to satisfy a jury as to damages based largely on statistics, the law of large numbers, and their experts’ analyses to show a reasonable estimate of total damages, without producing proof of reliance and fraud as to each of millions of smokers, with a damage figure assigned to each smoker and each year that he or she smoked.
If each smoker must be considered separately, as defendants suggest is the case, it would be impossible to proceed with a suit of this nature even if it were absolutely clear that each plaintiff had been damaged in the manner plaintiffs allege. The transactional costs and the relatively small recovery for the difference in value between what an individual smoker paid for and what he received would result in damages measured in tens or hundreds of dollars. The huge costs in bringing this action could not be supported by such individual adjudications.
The question then becomes whether the American legal system, faced with an alleged massive fraud, must throw up its hands and conclude that it has no effective remedy for what at this stage of the litigation must be assumed to be a huge continuing violation of consumers’ rights. In the American legal system, whose watchword has been, as already noted, “no right without a remedy,” the answer is that modern civil procedure, scientific analysis, and the law of large numbers used by statisticians provide a legal basis for a practical and effective remedy. The plaintiffs are entitled to the chance to prove their allegations.
Candor impels recognition of the fact that the Courts of Appeals have not been kind to massive claims against tobacco companies. Despite repeated findings of fact by judges and juries supporting claims of fraud, appellate courts have repeatedly dismissed such cases whether the claim was for consumer fraud, personal injury, or third party damages for costs of medical treatment. The defendants make a strong case that this suit, too, must founder on that appellate predilection for individual suits.
The case comes down to the role of the jury: should it be permitted to decide this vexing private litigation on the basis of
*1023
somewhat dubious arguments and questionable proofs when the decision has so many important public social overtones, or should the judges themselves decide by holding that the matter is beyond the ken of a reasonable jury? Here, the fundamentals of the Constitution provide the answer. The first Congress and the States that then constituted the Union still speak clearly enough:
AMENDMENT VII
RIGHTS IN CIVIL CASES
In Suits at common law, where the value in controversy shall exceed twenty dollars, the right of trial by jury shall be preserved, and no fact tried by a jury, shall be otherwise re-examined in any Court of the United States, than according to the rules of the common law.
See also Brink’s Inc. v. City of New York,
717 F.2d 700 , 711 (2d Cir.1983) (“There is no bright line that divides evidence worthy of consideration by a jury, although subject to heavy counter-attack, from evidence that is not. Especially because of the guaranty of the Seventh Amendment,- a federal court must be exceedingly careful not to set the threshold to the jury room too high.”) (quoting
Herman Schwabe, Inc. v. United Shoe Machinery Corp.,
297 F.2d 906, 912 (2d Cir.),
cert. denied,
369 U.S. 865 , 82 S.Ct. 1031 , 8 L.Ed.2d 85 (1962)).
If this case presents issues for the jury — as is now the decision of this court— then both the certification question and defense motions for summary judgment should be — and now are — decided in plaintiffs’ favor. That the court believes, on the evidence thus far produced, that the amount of possible damages has been grossly exaggerated by plaintiffs is not a basis for denying their right to a jury trial. Adjustments to damages can be made after all the evidence is in and the jury has made its decision, if that decision is unreasonable. ,
In Part II and Appendices A, B, C, and D, allegations and prior findings of fact against the tobacco companies on the fraud issue are sampled: First, is the general fraud in hiding the dangers of smoking, and second, is the particular fraud respecting lights. Appendix E includes portions of a Untied States Surgeon General’s report on the health risks posed by “light” cigarettes and the history of their development. Appendix F includes portions of a recent Commonwealth of Massachusetts report on continuing increases in nicotine inhaled from cigarettes, including those designated as “light.” In Part III, the law of RICO is analyzed and defendants’ central motions for dismissal considered.
In Part IV the court considers the role of collateral estoppel ' in this litigation. Whether an adjudication against either side would be binding on collateral estop-pel grounds in suits based on substantive theories similar to the one implicated in the present litigation when recovery is sought for physical injury to smokers rather than economic loss from the purchase of overpriced cigarettes is important. Recoveries for medical damage to the person of smokers are enormously higher than those sought now. This legal problem and the related problem of splitting a cause of action, also discussed in Part TV, do not trump class action advantages since members of the class can opt out. It is a factor, however, that needs evaluation in the context of certification.
In Parts V and VI, the parties’ additional motions for summary judgment are discussed and resolved. Part. VII addresses the motion for class certification. The question of class certification is critical for this court and the Court of Appeals. No individual can afford to prosecute the case alone. Denial of certification here or on
*1024
appeal would constitute a “death knell.” Part VIII contains an analysis pursuant to Rule 702 of the Federal Rules of Evidence of the proposed testimony of experts for defendants and plaintiffs to determine whether a jury should be permitted to hear them; it is concluded that most experts of both defendants and plaintiffs should be heard. Part IX considers management issues, including the use of aggregate proof and fluid recovery.
Part X considers application of Rule 23(f) or section 1292(b) of title 18 to an interlocutory appeal. Based on experience with the trial and other disposition of a number of aggregate tobacco actions in this court, it is the opinion of the court that this class action can be tried to a final judgment that provides appropriate protection against relitigation of the issues adjudicated with fidelity to the applicable substantive law. Federal courts have the institutional capacity to conduct these proceedings. The representation of defendants and plaintiffs is adequate to conduct the litigation for the benefit of all persons whose interests are being adjudicated.
Am immediate stay is rejected in Part XI. The Court of Appeals has the power to grant such a stay, but the case, in the trial court’s opinion, should promptly proceed in view of its long history.
Part XII orders that the class sought by plaintiffs be certified. The motions for summary judgment are denied.
Numerous interlocutory orders have been issued in this litigation.
See Schwab v. Philip Morris,
No. 04-CV-1945, 2006 WL 721368 (E.D.N.Y. Mar. 20, 2006) (overruling plaintiffs’ objections to magistrate judge’s orders); 2005 WL 3032556 (E.D.N.Y. Nov. 14, 2005) (discussing fluid recovery); 2005 WL 2467766 (E.D.N.Y. Oct. 6, 2005) (denying defendants’ motion for summary judgment on statute of limitations); 2005 WL 2401647 (E.D.N.Y. Sept. 29, 2005)
(Daubert
issues); 2005 WL 2401645 (E.D.N.Y. Sept. 27, 2005) (denying plaintiffs’ motions for partial summary judgment and application of collateral es-toppel); 2005 WL 2401635 (E.D.N.Y. Sept. 27, 2005) (denying defendants’ motion to dismiss claims based on increased muta-genicity of “light” cigarettes); 2005 WL 2401638 (E.D.N.Y. Sept. 27, 2005) (denying plaintiffs’ motion to exclude testimony that “light” cigarettes are safer than regular cigarettes); 2005 WL 2401639 (E.D.N.Y. Sept. 27, 2005) (denying plaintiffs’ Rule 16(c) motion for simplification of the issues); 2005 WL 2401642 (E.D.N.Y. Sept. 27, 2005) (denying defendant BATCo’s motion for summary judgment on all claims); 2005 WL 2401643 (E.D.N.Y. Sept. 27, 2005) (denying defendants’ motion to exclude expert testimony on the impact of “light” cigarette marketing on smoking rates); 2005 WL 2401565 (E.D.N.Y. Sept. 26, 2005) (denying plaintiffs’ motion for partial summary judgment on the existence of defendants’ conspiracy); 2005 WL 2401353 (E.D.N.Y. Sept. 26, 2005) (granting defendant British American Tobacco p.l.c.’s motion to dismiss); 2005 WL 2401350 (E.D.N.Y. Sept. 26, 2005) (denying plaintiffs’ motion for partial summary judgment on defendants’ claim that they complied with the directives of the public health community in developing “light” cigarettes); 2005 WL 2401276 (E.D.N.Y. Sept. 26, 2005) (denying plaintiffs’ motion for partial summary judgment on defendants’ claim that smokers knew about compensation and so were not defrauded); 2005 WL 2401633 (E.D.N.Y. Sept. 26, 2005) (denying plaintiffs’ motion for a permanent injunction prohibiting defendants from marketing or selling any cigarette with a “light” or “lights” descriptor); 2005 WL 2401196 (E.D.N.Y. Sept. 26, 2005) (denying plaintiffs’ motion for partial summary judgment on the meaning of the
*1025
“light” descriptor); 2005 WL 2303821 (E.D.N.Y. Sept. 22, 2005) (granting defendants’ motion for partial summary judgment on plaintiffs’ claims for equitable relief); 2005 WL 2303822 (E.D.N.Y. Sept. 22, 2005) (denying plaintiffs’ motion to strike defendants’ employee-expert reports but requiring those reports to meet the standards of Federal Rule of Civil Procedure 26(a)(2)(B)); 2005 WL 2303823 (E.D.N.Y. Sept. 22, 2005) (granting defendants’ motion to exclude the expert testimony of plaintiffs’ expert on business ethics); 2005 WL 2293381 (E.D.N.Y. Sept. 21, 2005) (denying defendants’ motion for an immediate stay of all proceedings); 2005 WL 2155141 (E.D.N.Y. Aug. 31, 2005) (excluding from consideration on interlocutory orders certain plaintiffs’ experts’ reports); 228 F.R.D. 165 (E.D.N.Y.2005) (preliminary reflections and questions for the parties). This memorandum and order incorporates and modifies the above orders.
II. Allegations
A. Burden of Proof
1. Class Certification
On a motion for class certification, plaintiffs bear the burden of proving that the requirements of Rule 23 of the Federal Rules of Civil Procedure have been met.
Amchem Prods., Inc. v. Windsor,
521 U.S. 591, 614 , 117 S.Ct. 2231 , 138 L.Ed.2d 689 (1997);
Caridad v. Metro-North Commuter R.R.,
191 F.3d 283, 291 (2d Cir.1999). At this stage in the litigation they need not show that they are likely to prevail on the merits.
Eisen v. Carlisle & Jacquelin,
417 U.S. 156, 178 , 94 S.Ct. 2140 , 40 L.Ed.2d 732 (1974). But' a “rigorous analysis” to determine that the Rule 23 requirements are met must be conducted.
Gen. Tel. Co. of Southwest v. Falcon,
457 U.S. 147, 161 , 102 S.Ct. 2364 , 72 L.Ed.2d 740 (1982). While it is sometimes mistakenly suggested that “a motion for class certification is not an , occasion for examination of the merits of the case,’ ”
In re Initial Pub. Offering Sec. Litig.,
227 F.R.D. 65, 93 (S.D.N.Y.2004), the courts should not launch the heavy and expensive machinery of the class action unless there is a chance for a recovery. In any event, since defendants combine their opposition to certification with a motion for summary judgment, the merits must be considered.
£
Summary Judgment
Plaintiffs need not prove that they will prevail at trial in order to survive a motion for summary judgment. Summary judgment is appropriate only if “there is no genuine issue' as to any material fact and ... the moving party is entitled to a judgment- as a matter of law.”
Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 248 , 106 S.Ct. 2505 , 91 L.Ed.2d 202 (1986).
See also Mitchell v. Washingtonville Central School District,
190 F.3d 1, 5 (2d Cir.1999).
The burden rests initially with the moving party to demonstrate the absence of a genuine issue of material fact.
Goenaga v. March of Dimes Birth Defects Found.,
51 F.3d 14, 18 (2d Cir.1995);
see also Celotex Corp. v. Catrett,
477 U.S. 317, 322-23 , 106 S.Ct. 2548 , 91 L.Ed.2d 265 (1986). If the moving party appears to meet this burden, the opposing party must produce evidence that raises a material question of fact to defeat the motion.
See
Fed.R.Civ.P. 56(e). This evidence may not consist of “mere conclusory allegations, speculation or conjecture[.]”
Cifarelli v. Village of Babylon,
93 F.3d 47, 51 (2d Cir.1996).
See also Delaware & Hudson Ry. v. Consolidated Rail Corp.,
902 F.2d 174, 178 (2d Cir.1990) (“Conclusory allegations will not suffice to create a genuine issue.”).
The mere existence of some peripheral factual disputes will not defeat an otherwise properly supported motion for sum
*1026
mary judgment.
Anderson,
477 U.S. at 247 , 106 S.Ct. 2505 . “[Ojnly disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment. Factual disputes that are irrelevant or unnecessary will not be counted.”
Id.
at 248 , 106 S.Ct. 2505 .
In deciding the motion, all inferences from, and ambiguities in, the underlying facts are to be resolved in favor of the party opposing summary judgment.
Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 587-88 , 106 S.Ct. 1348 , 89 L.Ed.2d 538 (1986). Only when reasonable minds could not differ as to the import of the proffered evidence is summary judgment proper.
See Anderson,
477 U.S. at 250-52 , 106 S.Ct. 2505 ;
Bryant v. Maffucci,
923 F.2d 979, 982 (2d Cir.1991).
“In considering the motion, the court’s responsibility is not to resolve disputed issues of fact but to assess whether there are factual issues to be tried.”
Knight v. U.S. Fire Ins. Co.,
804 F.2d 9 , 11 (2d Cir.1986). Critical is recognition of the jury’s fact-finding primacy:
It is well established that credibility assessments, choices between conflicting versions of the events, and the weighing of evidence are matters for the jury, not for the court on a motion for summary judgment. If, as to the issue on which summary judgment is sought, there is any evidence in the record from which a reasonable inference could be drawn in favor of the opposing party, summary judgment is improper.
Curry v. City of Syracuse,
316 F.3d 324, 333 (2d Cir.2003) (quotation marks omitted).
Defendants in this case have outproduced plaintiffs — in documents, number of experts, etc. — by at least two to one. Yet summary judgment, even in a large, complicated litigation such as this one, does not hinge on volume. If plaintiffs’ legal theory is sound, and if they can demonstrate that proof is available to support it, summary judgment for defendants is inappropriate. The materials supplied by both parties demonstrate that plaintiffs have available sufficient evidence, and a legal theory sufficiently sound, to withstand a motion for summary judgment.
B. Sources of Proof
The record is immense. Plaintiffs and defendants have submitted 200 volumes of documentary evidence, expert reports, and briefs. They have appeared before the court numerous times since suit was filed in May 2004. Argument on the dispositive motions was heard over two days in September 2005 and again in September 2006. Discovery was conducted under Magistrate Judge Steven Gold for over a year and a half. The docket contains some 1000 entries.
Aspects of the cigarette litigation before this and other courts provide additional sources of proof for decision on the summary judgment and certification motions.
See, e.g., United States v. Philip Morris USA, Inc.,
449 F.Supp.2d 1 (D.D.C.2006) (part 1 of 6) (final order containing findings of fact and law after 9-month bench trial on federal government’s civil RICO suit against tobacco manufacturers for mail and wire fraud);
Davies v. Philip Morris USA, Inc.,
No. 04-2-08174-2, 2006 WL 1600067 (Wash.Super. May 26, 2006) (denying certification of class of Washington smokers of Marlboro Lights alleging fraud under state consumer protection act);
Pearson v. Philip Morris, Inc.,
No. 0211-11819, 2006 WL 663004 (Or.Cir. Feb. 23, 2006) (denying certification of class of Oregon smokers of Marlboro Lights alleging fraud under state consumer protection act);
Aspinall v. Philip Morris Companies, Inc.,
442 Mass. 381 , 813 N.E.2d 476
*1027
(2004) (affirming lower court’s certification of class of Massachusetts smokers of Marlboro Lights for fraud under state consumer protection act);
Curtis v. Philip Morris Companies, Inc.,
No. PI 01-018042, 2004 WL 2776228 (Minn.Dist.Ct. Nov. 29, 2004) (certifying class of Minnesota smokers of Marlboro Lights for fraud under state consumer protection act);
Craft v. Philip Morris, Inc.,
No. 002-00406A, 2003 WL 23139381 (Mo.Cir. Dec. 31, 2003) (denying summary judgment in class action by Missouri smokers of Marlboro Lights for fraud under state consumer protection act);
Craft v. Philip Morris, Inc.,
No. 002-00406A, 2003 WL 23355745 (Mo.Cir. Dec. 31, 2003) (granting class certification in same suit);
Price v. Philip Morris, Inc.,
No. 00-L-112, 2003 WL 22597608 (Ill.Cir. March 21, 2003) (findings of fact and law after bench trial on Illinois smokers’ class action against tobacco manufacturers for “light” cigarette fraud under state consumer protection law),
rev’d on other grounds,
219 Ill.2d 182 , 302 Ill.Dec. 1 , 848 N.E.2d 1 (111.2005) (holding that the action was barred by the state act);
In re Simon II Litigation,
211 F.R.D. 86 (E.D.N.Y.2002) (certifying nationwide class for litigation of punitive damages for fraud by tobacco companies),
rev’d,
407 F.3d 125 (2d Cir.2005);
Blue Cross & Blue Shield of New Jersey v. Philip Morris, Inc.,
178 F.Supp.2d 198 (E.D.N.Y.2001) (discussing jury findings after 44 days of trial on health insurer’s claim that tobacco companies distorted public body of knowledge about cigarettes in violation of New York’s consumer protection statute),
rev’d on other grounds,
344 F.3d 211 (2d Cir.2003) and 393 F.3d 312 (2d Cir.2004);
Falise v. American Tobacco Co.,
94 F.Supp.2d 316 (E.D.N.Y.2000) (denying summary judgment in suit by trust established to compensate victims of asbestos against tobacco manufacturers for their alleged role in contributing to the trust claimants’ injuries).
Of particular note is the comprehensive recent opinion in the federal government’s civil RICO suit against these same defendants, alleging in part the same fraudulent behavior as is now being charged. The opinion runs to 1,742 pages and is minutely documented.
See United States v. Philip Morris USA Inc., supra.
Defendants object to the use of the district court’s findings in that suit — and the evidence upon which they were based — on the motions in this litigation. They argue that, because the district court considered the entire “low tar” market segment, which includes brands not bearing the “lights” descriptor, much of the evidence from the prior suit is irrelevant to this suit. The argument ignores the problem pervading both suits: the health concerns of smokers, which defendants attempted to deflect by their related “lights” and “low tar” advertisements. “Low tar” and “lights” findings in the suit by the United States in the District of Columbia provide substantial support for plaintiffs’ claims. Those findings, even if not decisive, supply persuasive muster for the case plaintiffs seek to construct.
The standard of probability under the rule [of relevance] is “more ... probable than it would be without the evidence.” Any more stringent requirement is unworkable and unrealistic. As McCormick says, “A brick is not a wall” ....
Fed.R.Evid. 401 advisory committee notes (1972) (citations omitted).
Plaintiffs have chosen a sensible class definition based, perhaps, on prior experience with other “lights” cases,
see
Part III.E.3.b.i (noting proposed class counsel’s previous involvement in such suits), or in anticipation of what a jury may find persuasive. That they.could have sought a broader class is no bar to evidence relevant both to the present class and the unchosen more general class. Contrary to
*1028
defendants’ characterization, plaintiffs’ allegations do not depend solely on the use of the “lights” descriptor.
See, e.g.,
proposed expert testimony of Marvin E. Goldberg, Part VIII.F.l.g,
infra,
on variety of marketing techniques employed by defendants, including color and imagery. Evidence of defendants’ conduct and its effects on the entire “low tar” market is relevant to their conduct and effect on the “lights” segment of that market. Subject to hearsay, prejudice, and other exclusions, if particular testimony, scientific studies, or internal industry documents could contribute to a jury’s understanding of defendants’ conduct and plaintiffs’ beliefs and alleged injuries with respect to “light” cigarettes, they are admissible.
See also
Part VIII.D,
infra
(rejecting a similar argument with respect to expert testimony).
C. Overview of the Conspiracy and Fraud
As noted, the fraud and conspiracy alleged here have been the subject of intense litigation in recent years. The court merely limns the allegations here. Appendices A, B, C, and D,
infra,
contain some of the detailed factual findings from previous litigations.
If plaintiffs’ allegations are true, defendants have engaged in a fifty-year still continuing conspiracy to deceive the public about the risks of smoking in order to prevent restrictive governmental regulation and prop up cigarette sales that otherwise would have sagged as smokers began to understand the array of diseases caused by smoking. As part of this conspiracy, defendants reacted to growing consensus in the late 1960s by public health officials that smoking cigarettes causes lung cancer and numerous other diseases by promoting new brands as low in tar. This conspiracy was neatly summarized by the district court in the government’s suit against the defendant companies after a nine-month bench trial:
Defendants ... marketed and promoted their low tar brands as being less harmful than conventional cigarettes [when they knew they were not].... By making these false claims, Defendants [gave] smokers an acceptable alternative to quitting smoking, as well as an excuse for not quitting.
Defendants used a combination of techniques to market and promote their low tar brands. Defendants’ marketing has emphasized claims of low tar and nicotine delivery accompanied by statements that smoking these brands would reduce exposure to the “controversial” elements of cigarette smoke (i.e., tar). Since the 1970s, Defendants also have used so-called brand descriptors such as “light” and “ultra light” to communicate reassuring messages that these are healthier cigarettes and to suggest that smoking low tar cigarettes is an acceptable alternative to quitting. In addition to appealing advertising and easily-remembered brand descriptors, Defendants have used sophisticated marketing imagery such as lighter color cigarette packaging and white tipping paper to reinforce the same message that these brands were low in tar and therefore less harmful____
Even as they engaged in a campaign to market and promote filtered and low tar cigarettes as less harmful than conventional ones, Defendants either lacked evidence to substantiate their claims or knew them to be false. Indeed, internal industry documents reveal Defendants’ awareness by the late 1960s/early 1970s that, because low tar cigarettes do not actually deliver the low levels of tar and nicotine which are advertised, they are unlikely to provide any clear health benefit to human smokers ... when compared to regular, full flavor cigarettes.
*1029
As Defendants have long been aware, nicotine delivered by cigarettes is addictive .... Defendants’ internal documents demonstrate their understanding that, in order to obtain an amount of nicotine sufficient to satisfy their addiction, smokers of low tar cigarettes modify their smoking behavior, or “compensate,” for the reduced-nicotine yields by taking more frequent puffs, inhaling smoke more deeply, holding smoke in their lungs longer, covering cigarette ventilation holes with fingers or lips, and/or smoking more cigarettes.... As a result of this nicotine-driven smoker behavior, smokers of light cigarettes boost their intake of tar, thus negating what Defendants have long promoted as the primary health-related benefit of light cigarettes: lower tar intake.
Defendants did not disclose the full extent and depth of their knowledge and understanding of smoker compensation to the public health community or to government regulators.
Defendants’ conduct relating to low tar cigarettes was intended to further their overarching economic goal: to keep smokers smoking; to stop smokers from quitting; to encourage people ... to start smoking; and to maintain or increase corporate profits.
United States v. Philip Morris,
at 449 F.Supp.2d at 430-43 .
D. Other “Light” Cigarette Fraud Actions
Class actions alleging fraud in the sales and marketing of “light” cigarettes have been brought in a number of state — and occasionally federal — courts in the past several years.
See, e.g., FLANAGAN V. ALTRIA GROUP, INC.,
No. 05-71697, 2005 WL 3719112 (E.D.Mieh. April 29, 2005);
Watson v. Philip Morris Companies, Inc.,
No. 03-CV-4661 (Ark.Cir.) (filed April 18, 2003);
Virden v. Altria Group, Inc.,
No. 03-C-64 M (W.Va.Cir. March 28, 2003);
Pearson v. Philip Morris, Inc.,
No. 0211-11819 (Or.Cir.) (filed Nov. 20, 2002);
Curtis v. Philip Morris Companies, Inc.,
No. PI 01-018042 (Minn.Dist.Ct.) (filed Nov. 28, 2001);
Craft v. Philip Morris Companies, Inc.,
No. 002-00406A (Mo. Cir.) (filed Feb. 14, 2000);
Marrone v. Philip Morris Cos.,
No. 99 CIV 0954 (Ohio Ct.Com.Pl.) (filed Nov. 8, 1999);
McClure v. Altria Group, Inc.,
No. 99C148 (Tenn. Cir.Ct.) (filed Jan. 19, 1999);
Trombino v. R.J. Reynolds Tobacco Co.,
No. L-11263-98 (N.J.Super.Ct.) (filed Jan. 19, 1999);
Aspinall v. Philip Morris Cos.,
No. 98-6002, 1998 WL 34190483 (Mass.Sup.Ct. Nov. 25, 1998);
Cummis v. Philip Morris Cos.,
No. L-2114-98 (N.J.Super.Ct.) (filed July 9, 1998);
OLIVER
V
R.J. REYNOLDS TOBACCO CO.,
No. 268 (Pa.Ct. Com.Pl. Mar. 6, 1998). Results have been mixed.
In several, certification was granted over challenges on the basis of individual causation and reliance.
See, e.g., Aspinall v. Philip Morris Companies, Inc.,
442 Mass. 381, 392-93 , 813 N.E.2d 476 (Mass. 2004) (approving class certification; defendants’ common course of conduct predominated over variations in damages; “pragmatically, [a class action] is the only method whereby purchasers of [“light” cigarettes] can seek redress for the alleged deception”);
Curtis v. Philip Morris-Companies, Inc.,
No. PI 01-018042, 2004 WL 2776228 , at *4 (Minn.Dist.Ct. Nov. 29, 2004) (on reconsideration, granting certification; defendants’ deliberately deceptive conduct justified presumption of reliance; as to proof of injury, because “ ‘it may be unlikely that any individual would smoke a cigarette the exact same way twice[,] ... it is probable that no smoker received the promised benefit of lowered tar and nicotine every time he or
*1030
she smoked a [“light”] cigarette’ ”) (quoting Aspinall);
Craft v. Philip Morris Companies, Inc.,
No. 002-00406A, 2003 WL 23355745 , at *4, 10 (Mo.Cir. Dec. 31, 2003) (compensation by smokers common enough to support certification; variations in damages insufficient to deny certification). In others, questions of individual causation and reliance were found to predominate and render certification inappropriate.
See, e.g., Davies v. Philip Morris USA Inc.,
No. 04-2-08174-2, 2006 WL 1600067 , at *3 (Wash.Super. May 26, 2006) (finding that individual causation questions predominated over common questions of defendants’ conduct);
Pearson v. Philip Morris, Inc.,
No. 0211-11819, 2006 WL 663004 , at
*7,
10 (Or.Cir. Feb. 23, 2006) (placing burden on each plaintiff to demonstrate that he or she was not receiving less tar; individual questions predominated because plaintiffs did not present any evidence purporting to prove reliance and causation on class-wide basis).
Some of these cases have failed on state law issues irrelevant to the instant suit.
See, e.g., Marrone v. Philip Morris USA Inc.,
110 Ohio St.3d 5, 13 , 850 N.E.2d 31 (Ohio 2006) (class certification denied; class action only maintainable under state Consumer Sales Practices Act if defendant’s alleged violation is “substantially similar to an act that was previously declared to be deceptive”);
Price v. Philip Morris, Inc.,
219 Ill.2d 182, 196, 265-66 , 302 Ill.Dec. 1 , 848 N.E.2d 1 (Ill.2005) (consent orders between FTC and two defendants restricting “use of the words ‘low,’ ‘lower,’ or ‘reduced’ or like qualifying terms” with respect to the amount of tar in its cigarettes “specifically authorize^] all United States tobacco companies to utilize” such terms, including “light,” “so long as the descriptive terms are accompanied by a clear and conspicuous disclosure of the ‘tar’ and nicotine content,” barring suit under Illinois state statute protecting defendants against consumer fraud actions based on actions “specifically authorized by law administered by any regulatory body or officer acting under statutory authority of this State or the United States”);
Flanagan v. Altria Group, Inc.,
No.
05-71697,
2005 WL 2769010 (E.D.Mich. Oct. 25, 2005) (same under Michigan Consumer Protection Act).
In every case, the class sought was restricted to smokers of particular brands residing within a particular state.
See, e.g., Flanagan
(smokers of Cambridge Lights and Marlboro Lights in Michigan);
Price
(smokers of Cambridge Lights and Marlboro Lights in Illinois);
Aspinall
(smokers of Marlboro Lights in Massachusetts). Yet as shown in Appendix E,
infra,
the National Cancer Institute’s 2001 monograph on “light” cigarettes (“Monograph 13”), and Appendix F,
infra,
the Massachusetts Department of Health analysis of increasing nicotine in cigarettes, the alleged frauds and harms were widespread across the industry and the country.
The federal government conducted, at great expense, a civil prosecution under RICO against the defendants named in this suit, who are the dominant members of the tobacco industry.
United States v. Philip Morris,
No. 99-2496 (filed Sept. 22, 1999). Alleging fraud with regards to all cigarettes sold by the defendants, including the “light” cigarettes at issue in this case, it sought disgorgement of the tobacco companies’ profits traceable to cigarette sales to addicted youths between 1971 and 2001 — an estimated 289 billion dollars — to repay health expenditures the federal government had paid or would pay to treat tobacco-related illnesses.
See United States v. Philip Morris USA Inc.,
396 F.3d 1190, 1193 (D.C.Cir.2005). An interlocutory ruling by the Court of Appeals for the District of Columbia rendered dis
*1031
gorgement unavailable under the civil remedy provision relied upon by the government.
Id.
at 1202 (holding that 18 U.S.C. § 1964 (a) is limited to prospective • remedies, of which disgorgement is not one). The district court then completed the bench trial and held in favor of the government on most claims. It entered an order prohibiting the use of descriptors such as “light,” “mild,” and “low tar,” and enjoining defendants from making misleading statements about their products in the future,
United States v. Philip Morris,
449 F.Supp.2d at 937 (final judgment and remedial order); directing defendants to issue corrective statements to clear up their prior misrepresentations,
id.
at 938-40; requiring defendants to be more transparent by maintaining document depositories and websites,
id.
at 944; and awarding costs to the government.
Id.
449 F.Supp.2d at 944-45 .
No case has sought, as this one does, a nationwide class to recover economic damages stemming from the alleged “light” cigarette fraud perpetrated by the industry.
III. Racketeer Influenced and Corrupt Organizations Act
The Racketeer Influenced and Corrupt Organizations Act (“RICO”) has strong civil as well as criminal implications. It makes it unlawful “for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise’s affairs through a pattern of racketeering activity or collection of unlawful debt” or “to conspire to violate” the Act. 18 U.S.C. §§ 1962 (c), 1962(d). RICO defines “racketeering activity” as any act indictable under a list of provisions in title 18 of the United States Code, ■ including sections 1341 and 1343, relating to mail and wire fraud. 18 U.S-.C. § 1961(1)(B).
Persons “injured in [their] business or property by reason of a violation of’ RICO’s criminal provisions may bring a private suit. 18 U.S.C. § 1964 (c). If successful, they “shall recover threefold the damages [they] sustain[] and the cost of the suit, including a reasonable attorney’s fee.”
Id.
This civil suit provision, no less than the rest of the RICO statute, is to be “liberally- construed to effectuate its remedial purposes.” Pub.L. 91-452, § 904 (a), 84 Stat. 947 (1970).
See Sedima, S.P.R.L. v. Imrex Co., Inc.,
473 U.S. 479, 498 , 105 S.Ct. 3275 , 87 L.Ed.2d 346 (1985) (“The statute’s ‘remedial purposes’ are nowhere more evident than in the provision of a private action for those injured by racketeering activity.”).
Dispute over the exact contours of civil RICO is ongoing.
Compare United States v. Philip Morris USA, Inc.,
396 F.3d 1190, 1197 (D.C.Cir.2005) (disgorgement not a permissible remedy under civil RICO),
with United States v. Carson,
52 F.3d 1173, 1182 (2d Cir.1995) (disgorgement permissible but only if calibrated to restrain and prevent future conduct),
and Richard v. Hoechst Celanese Chem. Group, Inc.,
355 F.3d 345, 354-55 (5th Cir.2003) (following Carson).
Compare Ideal Steel Supply Corp. v. Anza,
373 F.3d 251, 262-63 (2d Cir.2004) (reliance by plaintiff or third party on alleged mail or wire fraud is required),
rev’d on other grounds,
— U.S. -, 126 S.Ct. 1991 , 164 L.Ed.2d 720 (2006),
with Systems Management, Inc. v. Loiselle,
303 F.3d 100, 104 (1st Cir.2002) (reliance not required). No one doubts, however, that the statute relied upon by present plaintiffs provides a
*1032
remedy for fraud perpetrated by legitimate businesses on their customers if the customers can establish that the fraud caused them a financial loss.
See, e.g., Kemp v. American Tel. & Tel
.
Co.,
393 F.3d 1354, 1360 (11th Cir.2004) (upholding class action jury verdict against phone company for fraudulent billing practices);
Carnegie v. Household Int’l, Inc.,
376 F.3d 656, 658-59 (7th Cir.2004) (class of customers could sue tax preparers who were secretly self-dealing);
Moore v. Paine-Webber, Inc.,
189 F.3d 165, 167 (2d Cir.1999) (financial services company could be held liable to class for allegedly misrepresenting that its life insurance policies were akin to individual retirement- accounts, “thereby tricking [class members] into buying life insurance with funds that they would otherwise have used for IRAs or similar investments”).
Civil RICO is akin to a Russian ma-tryoshka doll, with statutes nested inside of statutes. It demands that a plaintiff prove injury stemming from a violation of criminal RICO, which in turn requires proof of a pattern of violations of one or more specific state or federal criminal statutes. As the appellate courts have built specific requirements into the substance of the somewhat vague criminal and civil provisions, each layer has become more complex.
All defendants move for summary judgment on issues of causation, injury, damages, and the statute of limitations. If a motion was granted on any one of these grounds, it would be fatal to the suit. For reasons indicated below, summary judgment is denied.
These motions take aim at the aggregate nature of this litigation. The discussion here sounds themes that will be heard again in the discussion of class certification.
See
Part VII,
infra.
A. Violation of Criminal RICO
To sustain a claim under civil RICO, plaintiffs must first prove that defendants violated RICO’s criminal provisions. 18 U.S.C. § 1964 ,
supra.
Plaintiffs here allege injury stemming from a pattern of racketeering activity by defendants (in violation of section 1962(c)) and a conspiracy to commit such activity (in violation of section 1962(d)).
1. Conduct of a Racketeering Enterprise (§ 1962(c))
To prove a violation of 1962(c), plaintiffs must demonstrate that defendants conducted or participated in the affairs of an enterprise through a pattern of racketeering activity.
Sedima,
473 U.S. at 496 , 105 S.Ct. 3275 .
a. Enterprise
An enterprise, as defined in the statute, “includes any individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entityf.]” 18 U.S.C. § 1961 (4).
See also First Capital Asset Mgmt., Inc. v. Satinwood, Inc.,
385 F.3d 159 (2d Ch*.2004) (quoting the statute).
A RICO enterprise is “a group of persons associated together for a common purpose of engaging in a course of conduct,” the existence of which is proven “by evidence of an ongoing organization, formal or informal, and by evidence that the various associates function as a continuing unit.”
United States v. Turkette,
452 U.S. 576, 583 , 101 S.Ct. 2524 , 69 L.Ed.2d 246 (1981). The enterprise must be engaged in, or the activities of the enterprise must affect, interstate or foreign commerce. 18 U.S.C. § 1962 .
See also First Capital,
385 F.3d at 173 n. 12. Corporations qualify as persons under the act.
See
18 U.S.C.
*1033
§ 1961(3) (“ ‘[P]erson’ includes any individual or entity capable of holding a legal or beneficial interest in property!)]”).
Plaintiffs here allege an association in fact comprised of the named defendant corporations and industry organizations “whereby they coordinated their efforts and conducted their affairs for the past 50 years, with the likelihood of future continuance, in order to achieve the shared goals of preserving and expanding the market for cigarettes and maximizing their profits.” Second Amended Complaint (“SAC”) ¶ 187.
While denying the accuracy of the factual contentions underlying the claims, defendants do not deny that, if proved, plaintiffs’ allegations would demonstrate the existence of an enterprise under the statute.
b. Conduct
A defendant “conduces] or partiei-pate[s], directly or indirectly, in the conduct of [an] enterprise’s affairs,” 18 U.S.C. § 1962 (c), when it has “some part in directing those affairs.”
Reves v. Ernst & Young,
507 U.S. 170, 179 , 113 S.Ct. 1163 , 122 L.Ed.2d 525 (1993): “Of course, the word ‘participate’ makes clear that RICO liability is not limited to those with primary responsibility for the enterprise’s affairs, just as the phrase ‘directly or indirectly’ makes clear that RICO liability is not limited to those with a formal position in the enterprise; but some part in directing the enterprise’s affairs is required.”
First Capital,
385 F.3d at 176 (quoting
Reves)
(alterations omitted).
“[0]ne is liable under RICO only if he participated in the operation or management of the enterprise itself.”
Id.
(quoting
Azrielli v. Cohen Law Offices,
21 F.3d 512, 521 (2d Cir.1994)).
See also Reves,
507 U.S. at 179 , 113 S.Ct. 1163 (approving this test). “In this Circuit, the ‘operation or management’ test typically has proven to be a relatively low hurdle for plaintiffs to clear, especially at the pleading stage.”
First Capital,
385 F.3d at 176 . Whether a defendant operated or managed the affairs of an enterprise is “essentially [a question] of fact.”
Id.
With the exception of BATCo, defendants do not contest that, if true, plaintiffs’ allegations would adequately demonstrate that, in a legal sense, defendants had operated or managed the alleged enterprise.
See
Part V.B,
infra.
c. Racketeering activity
Racketeering activity is any of a number of violations of state and federal law listed in section 1961(1), including — as alleged in this and many other civil RICO cases— mail and wire fraud in violation of sections 1341 and 1343 of title 18.
See
18 U.S.C. § 1961 (1) (listing offenses); 18 U.S.C. § 1341 (criminalizing use of the mails to “obtainf ] money or property by means of false or fraudulent pretenses, representations, or promises”); 18 U.S.C. § 1343 (same by way of “wire, radio, or television communication in interstate ... commerce”). . Instances of racketeering activity are described as “predicate acts.”
See Sedima,
473 U.S. at 497 , 105 S.Ct. 3275 .
In relevant part the mail fraud statute reads:
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, [or] representations ... for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be
*1034
sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be [guilty of a crime.]
18 U.S.C. § 1341 .
In parallel language, the wire fraud provision reads in relevant part:
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be [guilty of a crime.]
18 U.S.C. § 1343 .
The Court of Appeals for the Second Circuit has recently approved a simple charge defining a fraudulent “plan, device, or course of action” as follows:
The district court instructed the jury that the phrase “any scheme or artifice to defraud” is defined as:
[A]ny plan, device or course of action that deprives another of money or property by means of false or fraudulent pretenses, representations or promises. It is, in other words, a plan to deprive another of money or property by trick, deceit, deception, swindle or overreaching.
That instruction comports with the Supreme Court’s command that the statute be read conjunctively to require that the defendant not only devise a scheme or artifice, but also use that scheme or artifice to obtain money or property.
United States v. Males,
459 F.3d 154, 157-58 (2d Cir.2006).
Plaintiffs allege that defendants used the mails and interstate communication wires to advertise deceptively, and make misleading public statements about the health risks of, “light” cigarettes, thereby obtaining plaintiffs’ money by fraud. There are myriad examples relied upon by plaintiffs of acts violating these statutes.
See
SAC, App. B (non-exclusive list of predicate acts of mail and wire fraud).
d. Pattern
A civil RICO plaintiff must not only prove that the defendant engaged in acts defined as racketeering in section 1961(1) of title 18, but must also prove that these acts constituted a pattern. To establish such a pattern, a plaintiff must plead and prove at least two section 1961(1) predicate acts, show that the acts are related, and demonstrate that they amount to, or pose a threat of, continuing criminal activity.
See
18 U.S.C.A. §§ 1961 (1), 1962(c);
H.J. Inc. v. Northwestern Bell Tele. Co.,
492 U.S. 229 , 109 S.Ct. 2893 , 106 L.Ed.2d 195 (1989);
Economic Opportunity Com’n of Nassau County v. County of Nassau, Inc.,
47 F.Supp.2d 353 (E.D.N.Y.1999).
Plaintiffs have pleaded nineteen predicate acts of mail and wire fraud.
See
SAC, App. B. Defendants do not contest that, for the purposes of summary judgment and certification, the acts are sufficiently related to each other and the alleged common purpose of defendants to constitute a pattern — or that, if proved, they would demonstrate a threat of continuing racketeering activity. They do not raise the judgment and injunction in
United States v. Philip Morris,
Appendix A,
supra,
as a bar to a finding that there
*1035
remains a threat of criminal conduct prohibited by RICO.
2. Conspiracy (§ 1962(d))
The conspiracy required is vanilla flavored. Two or more defendant corporations must have agreed explicitly or by implication to act together and commit two related criminal acts. Defendants argue that this provision requires that plaintiffs prove that each conspirator itself agreed to commit two predicate acts. In the seminal case
Salinas v. United States, 522
U.S. 52, 118 S.Ct. 469 , 139 L.Ed.2d 352 (1997), the Supreme Court held that the RICO conspiracy statute does not impose such a requirement.
Id.
at 63 , 118 S.Ct. 469 . Defendants contend, however, that the
Salinas
standard is limited to criminal cases. Relying on
Cofacredit, S.A. v. Windsor Plumbing Supply Co.,
187 F.3d 229, 244-45 (2d Cir.1999), they submit that, in civil cases, the Court of Appeals for the Second Circuit requires that each defendant agree that he would commit two predicate acts himself.
a.
Cofacredit
While some language in
Cofacredit
may lend itself to this interpretation, defendants’ contention is rejected for several reasons. First, imposing a stricter standard in civil cases is inconsistent with the broad holding of
Salinas
that the RICO conspiracy statute did not change well-established principles of conspiracy law.
See Salinas, 522
U.S. at 63, 118 S.Ct. 469 . Second, neither the Supreme Court nor the Second Circuit have distinguished between RICO conspiracy standards . for criminal and civil cases.
See Cofacredit,
187 F.3d at 244-45 . Third, a construction of the standard for civil RICO conspiracy in line with the standard set forth in
Salinas
is supported by subsequent decisions in the Second Circuit and persuasive authority from other circuits. Finally, plaintiffs allege, and there is ample evidence to support, an agreement to take requisite action by each of the defendants. For purposes of a preliminary ruling on certification or summary judgment, plaintiffs satisfy both the narrow and broad readings of RICO’s requirement for an agreement to commit two or more predicate acts.
In
Cofacredit,
the defendants were sued on multiple theories, including substantive and conspiracy RICO violations, for their involvement in a scheme to obtain financing from the plaintiffs by presenting sham invoices for factoring.
Cofacredit,
187 F.3d at 234 . The Court of Appeals for the Second Circuit found that there was insufficient evidence that the alleged predicate acts displayed the continuity necessary for a substantive RICO offense, or that the defendants agreed to commit additional predicate acts that, if committed, would have displayed the requisite continuity.
Id.
at 245 .
The court applied a two-prong test in reaching this finding. First, a plaintiff must establish that the defendants “agreed to form and associate themselves with a RICO enterprise and that they agreed to commit two predicate acts in furtherance of a pattern of racketeering activity in connection with the enterprise.”
Id.
at 244 (citing
United States v. Sessa,
125 F.3d 68, 71 (2d Cir.1997)). Second, a plaintiff must show that if the agreed-upon predicate acts had been carried out, they would have constituted a pattern of racketeering activity.
Id.
at 245 (citing
Salinas, 522
U.S. at 65, 118 S.Ct. 469 ).
The case at bar concerns the interpretation of the second clause of the first prong: “they agreed to commit two predicate acts in furtherance of a pattern of racketeering activity.” Syntactically, the clause may be understood either as requiring that each
*1036
defendant agree that he would commit two predicate acts personally, or that the defendants agreed among themselves that one or some of them would commit two predicate acts. Only the latter interpretation is consistent with Supreme Court precedent, subsequent Court of Appeals for the Second Circuit cases, Second Circuit district courts’ applications of the RICO conspiracy provision, and, finally, persuasive authority from other circuits. The fatal defect in plaintiffs claim in
Cofa-credit
was that the predicate acts did not extend for a sufficient period to form a pattern of racketeering activity, no matter which defendant had agreed to commit them.
Id.
at 245.
b. Supreme Court precedent
This reading of
Cofacredit
to ease plaintiffs’ burdens accords with the Supreme Court’s holding in
Salinas v. United States,
522 U.S. at 63 , 118 S.Ct. 469 , that the RICO conspiracy provision does not require that each defendant agree to commit two predicate acts personally. In
Salinas ,
the defendant challenged his conviction for RICO conspiracy because the jury had not been instructed that he had to have agreed to commit two predicate acts personally.
Id.
at 61 , 118 S.Ct. 469 . The Supreme Court rejected that contention on two grounds. First, unlike the general federal conspiracy statute, 18 U.S.C. § 371 , which requires that at least one of the conspirators commit an overt act to “effect the object of the conspiracy,” section 1962(d) “broadened conspiracy coverage by omitting the requirement of an overt act.”
Id.
at 61, 64 , 118 S.Ct. 469 . Second, the phrase “to conspire” should be interpreted according to well-established principles of conspiracy law, because section 1962(d) “did not ... work the radical change of requiring the Government to prove each conspirator agreed that he would be the one to commit two predicate acts.”
Id.
at 64 , 118 S.Ct. 469 .
Traditionally, conspiracy requires an agreement between two or more persons to commit an offense and an overt act in furtherance of the object of the conspiracy.
United States v. Falcone,
311 U.S. 205, 207 , 61 S.Ct. 204 , 85 L.Ed. 128 (1940). After he has' agreed to join the conspiracy, each co-conspirator is liable for the acts of his co-conspirators.
See, e.g., Pinkerton v. U.S.,
328 U.S. 640, 646-47 , 66 S.Ct. 1180 , 90 L.Ed. 1489 (1946) (“[S]o long as the partnership in crime continues, the partners act for each other in carrying it forward. It is settled that an overt act of one partner may be the act of all without any new agreement specifically directed to that act.”);
Bannon v. U.S.,
156 U.S. 464, 469 , 15 S.Ct. 467 , 39 L.Ed. 494 (1895) (“It has always been ... that, after prima facie evidence of an unlawful combination has been introduced, the act of any one of the co-conspirators in furtherance of such combination may be properly given in evidence against all.”).
In accordance with these traditional principles, the Court in
Salinas
held that the RICO conspiracy provision reaches a conspirator who “intend[s] to further an endeavor which, if completed, would satisfy all of the elements of a substantive criminal offense[. I]t suffices that he adopt the goal of furthering or facilitating the criminal endeavor.”
Salinas,
522 U.S. at 65 , 118 S.Ct. 469 . The requirement of two predicate acts for a substantive offense under section 1962(c) “makes no difference” in respect to the coverage of the conspiracy provision.
Id.
The Court recognized that some circuits may have required that each defendant agree that he would commit two predicate acts because “in some cases the connection the defendant had to the alleged enterprise or to the conspiracy to further it may be tenu
*1037
ous enough so that his own commission of two predicate acts may become an important part of the Government’s case.”
Id.
at 65-66 , 118 S.Ct. 469 . Nonetheless, the Court refused to import such limited considerations into the general definition of RICO conspiracy.
Id.
at 66 , 118 S.Ct. 469 .
In light of
Salmas, Cofacredit
should not be construed to require that each defendant agree that he would commit two predicate acts. Imposing that requirement would substantially depart from the traditional principle of conspiracy that supporters are liable for the acts of the perpetrators so long as they agree to pursue together the same criminal objective.
See Salinas,
522 U.S. at 64 , 118 S.Ct. 469 . Such a departure would be inconsistent with the Supreme Court’s understanding that Congress intended to preserve the conventional scope of conspiracy when it enacted the RICO conspiracy provision.
Id.
at 63 , 118 S.Ct. 469 .
Defendants contend that the standard set forth in
Salinas
is limited to criminal cases. This contention is rejected. If defendants’ position were correct,
Cofacredit
would have distinguished its holding from
Salinas
and other criminal cases. The Court of Appeals for the Second Circuit, however, did not distinguish — but rather explicitly relied on — criminal RICO conspiracy cases to establish the' standard for RICO conspiracy.
See Cofacredit,
187 F.3d at 244 -45 (citing
Salinas,
118 S.Ct. at 477 , and
United States v. Sessa,
125 F.3d 68, 71 (2d Cir.1997)). In turn, the passage from
Sessa
relied on in
Cofacredit
quotes from another criminal case,
United States v. Benevento,
836 F.2d 60, 73 (2d Cir.1987).
The Supreme Court has not indicated that its holding in
Salinas
is limited to criminal cases. In
Beck v. Prupis,
529 U.S. 494 , 120 S.Ct. 1608 , 146 L.Ed.2d 561 (2000), a case subsequent to
Salinas ,
the Supreme Court rejected petitioner’s suggestion that the court should look to civil, rather than criminal, conspiracy to interpret section 1962(d).
Id.
at 501 n. 6, 120 S.Ct. 1608 . Citing to
Salinas ,
the Court stated that “the common law of criminal conspiracy ... define[s] what constitutes a violation of § 1962(d).”
Id.See also Smith v. Berg,
247 F.3d 532 , 539 (3d Cir.2001)
(“[Beck’s
] reference to
Salinas
does not in any way repudiate its holding about what constitutes a conspiracy violation or indicate that the violation is different in a civil context .... ”).
The Supreme Court did look to civil conspiracy law, however, for the “combined meaning” of section 1962(d) and section 1964(c), which provides for a private cause of action.
Beck,
529 U.S. at 501 n. 6, 120 S.Ct. 1608 . The Court held that an “injury caused by an overt act that is not an act of racketeering or otherwise wrongful under RICO ... is not sufficient to givé rise to a cause of action under § 1964(c) for a violation of § 1962(d).”
Id.
at 505, 120 S.Ct. 1608 . As the Third Circuit has remarked, the decision in
Beck
“actually limits the class of plaintiffs whose injuries are cognizable; it does not in any way limit the class of defendants who are liable.”
Smith,
247 F.3d at 539 n. 13. Yet, even assuming the civil conspiracy requirement of an injury caused by an overt act indirectly bears on the standard for conspiracy under section 1962(d), it would still not mandate that each particular conspirator agree that he would commit the wrongful act.
See Beck,
529 U.S. at 506-07 , 120 S.Ct. 1608 (“[A] plaintiff could, through a § 1964(c) suit for a violation of § 1962(d) sue co-conspirators who might not themselves have violated one of the substantive provisions of § 1962.”). As the Court explained, under the common law, once a conspirator commits a tortious act, then the other co-conspirators are jointly liable.
Id.
at 503, 120 S.Ct. 1608 (conspiracy is a
*1038
mechanism for “subjecting co-conspirators to liability when one of their member committed a tortious act”; “some wrongful act to the plaintiffs damage must have been done by one or more of the defendants, and the fact of a conspiracy merely bears on the liability of the various defendants as joint tort-feasors”; conspiracy is “a means for establishing vicarious liability for the underlying tort”) (citations omitted).
c. Subsequent decisions of the Second Circuit and district courts
The jurisprudence, of the Second Circuit subsequent to
Cofacredit
also lends no support to defendants’ argument. . In
Baisch v. Gallina,
346 F.3d 366, 376-77 (2d Cir.2003), the defendant contended that he was not a proper defendant in substantive and conspiracy RICO claims because he committed no predicate acts, did not operate or manage the enterprise, and his knowledge of fraud was insufficient to support a RICO conspiracy finding. The court rejected his arguments, and, relying on
Salinas ,
held that “in the civil context, a plaintiff must allege that the defendant knew about and agreed to facilitate the scheme.”
Id.
at 377. Since plaintiff had presented a genuine question as to defendant’s knowledge of the racketeering enterprise and his willingness to promote it, summary judgment for defendant was not appropriate.
Id.
Recent decisions by district courts in the Second Circuit have not required that a defendant agree to the personal commission of two predicate acts in the civil context.
See, e.g., Zito v. Leasecomm Corp.,
No. 02-CIV-8074, 2004 WL 2211650 , at *18 (S.D.N.Y. Sept. 30, 2004) (“[I]t is possible to violate § 1962(d) by conspiring with others, even without committing or agreeing to commit any predicate acts oneself.”);
Davis Lee Pharmacy, Inc. v. Manhattan Cent. Capital Corp.,
327 F.Supp.2d 159, 163-64 (E.D.N.Y.2004) (“A plaintiff ... must prove an agreement by each defendant to commit at least two predicate acts,” but “[t]he conspirator need not have agreed to commit the two or more predicate acts himself.”).
See also State Farm Mutual Auto. Ins. Co. v. CPT Med. Serv., P.C.,
375 F.Supp.2d 141, 150-51 (E.D.N.Y.2005) (holding that plaintiffs allegation that defendants provided “support” in furtherance of a pattern of racketeering activity was sufficient under 1962(d), even if plaintiff did not allege that defendants committed two predicate acts themselves).
d. Other circuits
Persuasive authority from other circuits supports construing the civil standard for a 1962(d) violation analogously to the standard set forth in
Salinas .
The Seventh Circuit has held that “an individual can be charged under § 1962(d) even if he personally does not agree to commit two predicate acts of racketeering.”
Slaney v. Int’l Amateur Athletic Fed’n,
244 F.3d 580, 600 (7th Cir.2001) (citing
Goren v. New Vision Int’l, Inc.,
156 F.3d 721, 731 (7th Cir.1998)). Explaining that the touchstone of 1962(d) liability is an agreement to violate the substantive RICO provisions, rather than an actual violation, the court confirmed that it is enough that “defendant ... agreed that
someone
would commit at least two predicate acts to accomplish [the] goals [of the conspiracy].”
Id.
(emphasis supplied).
The holdings of several circuits on a related issue — whether the reach of the RICO conspiracy statute is limited to those who would have participated in the operation or management of an enterprise — reaffirm the application of
Salinas
to civil cases. In light of
Salinas ,
the Court of Appeals for the Third Circuit held that a civil defendant may be held liable for conspiracy to violate section 1962(d) if
*1039
he knowingly agrees to facilitate a scheme which includes the operation or management of a RICO enterprise.
Smith,
247 F.3d at 538. The court overruled its prior holding in
United States v. Antar,
53 F.3d 568 (3d Cir.1995), which limited conspiracy liability to those who. had conspired personally to operate or manage the corrupt enterprise.
Smith
at 534.
See also United States v. Fernandez,
388 F.3d 1199 (9th Cir.2004) (overruling
Neibel v. Trans World Assurance Co.,
108 F.3d 1123 (9th Cir.1997), on the same grounds).
Smith
held that its prior holding in
Antar
was inconsistent with “the plain indication of the standard set forth in
Salinas ...
that one who opts into or participates in a conspiracy is liable for the acts of his co-conspirators which violate section 1962(c) even if the defendant did not personally agree to do, or conspire with respect to,
any
particular element.”
Smith,
247 F.3d at 537 (emphasis in original). The court explicitly rejected defendants’ contention that
Beck
limited
Salinas
to criminal cases.
Id.
at 538-39.
e. Conclusion on conspiracy requirements
Civil liability under RICO does not require that each conspirator agree to the personal commission of any element of the substantive offense — including the personal commission of two predicate acts.
B. Injury to Property
1. Law
A RICO plaintiff “can only recover to the extent that [] he has been injured in his business or property by the conduct constituting the violation.”
Sedima,
473 U.S. at 496 , 105 S.Ct. 3275 .
But the statute requires no more than this. Where the plaintiff alleges each element of the violation, the compensa-ble injury necessarily is the harm caused by predicate acts sufficiently related to constitute a pattern, for the essence of the violation is the commission of those acts in connection with the conduct of an enterprise. Those acts are, when committed in the circumstances delineated in § 1962(c), ‘an activity which RICO was designed to deter.’ Any recoverable damages occurring by reason of a violation of § 1962(c) will flow from the commission of the predicate acts.
Id.
at 497, 105 S.Ct. 3275 .
Money is property under RICO.
See Bankers Trust Co. v. Rhoades,
741 F.2d 511 (2d Cir.1984),
vacated and remanded on other grounds,
473 U.S. 922 , 105 S.Ct. 3550 , 87 L.Ed.2d 673 (1985) (“Bankers has alleged that it has been deprived of various sums of money by the defendants’ activities. There is no question that this constituted ‘injur[y] in [its] business or property...’”). As the Supreme Court has held in the antitrust context, “[I]t taxes the ordinary meaning of common terms to argue ... that a consumer’s monetary injury arising directly out of a retail purchase is not comprehended by the natural and usual meaning of the phrase ‘business or property.’ ”
Reiter v. Sonotone Corp.,
442 U.S. 330, 339 , 99 S.Ct. 2326 , 60 L.Ed.2d 931 (1979). The gloss courts have put on the phrase “business or property” in the antitrust context is more restrictive than that put on the phrase in the RICO context.
Compare Sedima
(in RICO suit, no requirement of a distinct “RICO injury”)
with Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,
429 U.S. 477, 489 , 97 S.Ct. 690 , 50 L.Ed.2d 701 (1977) (in antitrust suit, plaintiffs must plead and prove a distinct “antitrust injury”). A for-tiori, if money is property under the antitrust laws, it is property under RICO.
2. Defendants’ Motion for Summary Judgment on Injury
The challenge to plaintiffs’ claim of injury overlaps with defendants’ motion to dis
*1040
miss on damages grounds, and is largely-discussed at Part III.D,
infra.
Addressed here are two peripheral arguments of defendants that are rejected.
a. Proprietary injury
Defendants contend that plaintiffs have not suffered an injury to their business or property because “light” cigarettes have always cost the same as regular cigarettes, and many, if not all, of the class members would have continued to smoke in the absence of the alleged fraud. These contentions may persuade a jury, but cannot decide the motion for summary judgment.
Defendants rest their challenge on one in-circuit and three out-of-circuit cases. Each, they avow, stands for the proposition that a defrauded plaintiff cannot show injury under RICO if the object he or she received was worth what he or she paid for it. None bars plaintiffs’ claims.
In
Commercial Union Assurance Co. v. Milken,
17 F.3d 608 (2d Cir.1994), the Court of Appeals for the Second Circuit held that plaintiff investors who initially suffered losses stemming from the criminal conduct of Michael Milken and others could not maintain an action under RICO after the full amount of their original investment had been returned to them. 17 F.3d at 611 (noting that appellants had received “114.6 percent of their initial capital investment and they still own their partnership interests”). Because plaintiffs had “received the return actually bargained for, they had suffered no compensa-ble RICO injury.”
First Nationwide Bank v. Gelt Funding Corp.,
27 F.3d 763, 769 (2d Cir.1994) (describing the holding in Milken). Smoker plaintiffs’ claim here, to the contrary, is that they did not receive what they bargained for — i.e., a safer cigarette.
Milken
is inapplicable.
In
Heinold v. Perlstein,
651 F.Supp. 1410 (E.D.Pa.1987), the court dismissed for lack of injury a suit seeking recovery for a lost “bargain opportunity” due to a retailer’s representation that a ring was more valuable than it was.
See
651 F.Supp. at 1411 . Critically, the plaintiff conceded that the ring was, in fact, worth more than he had paid.
Id.
The plaintiff sought to recover his expectancy damages, which he defined as the difference between the value that the defendant represented the ring to have and the actual value of the ring.
Id.
The court rejected the plaintiffs position since the only property to which the plaintiff alleged an injury was his expectation interest. “Since plaintiff admits that he either broke even or came out ahead on the deal, albeit not as far ahead as he had hoped, I fail to see what property injury he sustained.”
Id. Heinold
is easily distinguishable from the case at hand. Here, plaintiffs allege that they paid
more
than the fair market value of the cigarettes they purchased. It is not only the expectation of a benefit that is the source of plaintiffs’ claim, but an actual loss of money: had the truth about “light” cigarettes been revealed earlier, they contend, the market value of these cigarettes would have been lower than the amount they paid.
See
Expert Reports of Dr. Jeffery Harris, Part VIII.F.l.h (under one of plaintiffs’ damage models, “an economist assesses, on a per-cigarette basis, the difference between the price paid for the good as represented and the value of the good actually sold”); Dr. John Beyer, Part VIII.F.l.a (another model, using multiple regression, “identifies the extent to which prices of cigarettes were higher as a result of the alleged fraudulent behavior.”).
Similarly inapt is
Line v. Astro Manufacturing,
993 F.Supp. 1033 (E.D.Ky.1998). In
Line ,
a putative class of owners of manufactured homes sued the builders to recover for diminution of property value
*1041
associated with homes that were subject to an increased risk of injury and death from fires. The court held that the plaintiffs had not alleged a RICO injury because the houses they had purchased were not worth less than what the plaintiffs had paid for them.
See
993 F.Supp. at 1037 (a plaintiff “did not suffer any injury to business or property because he paid no more than fair market value for a manufactured home without a sprinkler system”). On the record in this suit, the jury may well decide that the cigarettes purchased by plaintiffs were worth less than, and had a fair market value below, what plaintiffs had actually paid.
A third case relied on by defendants,
Frankford Trust Co. v. Advest, Inc.,
943 F.Supp. 531 (E.D.Pa.1996), is also wide of the mark.
Frankford Trust
found
Hein-hold’s
limitations — no recovery for harm to an expectation interest — inapplicable in a suit alleging mismanagement of funds and seeking profits that would have been earned had defendants invested wisely.
See
943 F.Supp. at 535
(“Heinold
is easily distinguishable from the case at hand.”). The district court’s holding in
Frankford Trust
that lost profits could be an injury under RICO does not preclude present plaintiffs’ claim that they paid more than the fair market value for “light” cigarettes.
That “light” cigarettes did and do cost the same as regular cigarettes may not prevent a finding that plaintiffs paid more than fair market value. Plaintiffs contend that implicit in defendants’ marketing was a trade-off between taste and safety. Smokers who chose “light” cigarettes, they claim, understood that flavor would be sacrificed for decreased health risks.
See, e.g.,
Brown & Williamson, “Low ‘Tar’ Satisfaction, Step 1, Identification of Perceived and Underperceived Consumer Needs,” July 25, 1977, Bates No. 775036043^14 (“It must be assumed that Full Taste smokers come down to ‘low tar’ expecting less taste ... they are willing to compromise taste expectations for health reassurance.”); “Low Tar Brand Market Overview and Lights Review,” Nov. 1994, Bates No. 403695152 (“Lights as a descriptor has distinct perception of relating to an expectation of low tar/nicotine delivery with an additional secondary expectation of reduced taste.”). Under this view, a “light” cigarette that did not provide any decreased health risk would be worth less than a regular cigarette, even if both were priced the same, because of deficiencies in the latter’s taste. Defendants counter that most “light” smokers claim to prefer the taste of “light” cigarettes — suggesting that health risks do not play a major role in the choice to start or continue smoking “lights.” Under this view, a smoker who preferred the taste of “light” cigarettes would have no injury even if he or she received no less tar or nicotine than he or she would have from a regular cigarette.
But see
Expert Report of Marvin Goldberg, pp.9-14, excerpted in Part VIII. F.l.g (arguing that defendants’ marketing of “light” cigarettes shaped consumer perceptions of taste);
Price,
Appendix C at ¶ 41,
infra
(finding that some smokers’ stated preference for the taste of “light” cigarettes “was actually an additional health reassurance reinforcement”). These intricate questions of implicit promises and subjective value are in the jury’s bailiwick.
Damage models submitted to the jury will be vetted to conform to the evidence and any jury finding on injury. For example, if the jury were to find that “light” cigarettes were worth what plaintiffs paid, then only damages stemming from sales to those who would have quit, or would have smoked fewer cigarettes but for the fraud, will be permitted.
See
Part III.D.3.a (discussing basis for computation of out of
*1042
pocket losses if benefit of the bargain recovery is disallowed).
b. Personal injury
Defendants urge' that plaintiffs are improperly seeking compensation for increased risk of future personal injury under the cover of economic harm. Plaintiffs respond that the damages they seek are the most direct form of damage envisioned under RICO — money that was taken from them by fraud.
It is not clear that personal injury damages are not recoverable under RICO.
See Nat’l Asbestos Workers Med. Fund v. Philip Morris, Inc.,
74 F.Supp.2d 221, 229 (E.D.N.Y.1999) (“The most natural reading of the language in RICO supports the conclusion that pecuniary losses resulting from racketeering and causing personal injuries should be compensable under the statute.”);
Guerrero v. Gates,
110 F.Supp.2d 1287, 1293 (C.D.Cal.2000) (permitting recovery for personal injuries caused by police misconduct; collecting cases).
See also Hargraves v. Capital City Mortg. Corp.,
140 F.Supp.2d 7, 26 (D.D.C.2000) (citing
National Asbestos Workers Medical Fund)
(denying motion to dismiss claims seeking damages for emotional or physical injuries).
But see Berg v. First State Ins. Co.,
915 F.2d 460, 464 (9th Cir.1990) (personal injuries not compensable under RICO);
Rylewicz v. Beaton Services, Ltd.,
888 F.2d 1175 (7th Cir.1989) (same).
The Court of Appeals for the Second Circuit has yet to rule on the matter. A prohibition on recovery for personal injuries would not be consonant with the statutory language (“The provisions of this title shall be liberally construed to effectuate its remedial purposes.” Pub.L. 91-^452, § 904(a), 84 Stat. 947 .), or the Supreme Court’s admonition that “RICO is to be read broadly.”
Sedima,
473 U.S. at 497 , 105 S.Ct. 3275 . In any event, plaintiffs here do not seek damages for personal injuries, either directly or indirectly.
Plaintiffs’ proposed jury instructions would make this distinction clear. “Damages that are recoverable include, for example, the payment of money, unjust profits, and overcharges. They do not include, for example, claims for personal injury or mental anguish.” Pis.’ Prop. Jury Inst. 6.
Relying on a footnote from
In re Bridge-stonetFirestone, Inc. Tires Products Liability Litigation,
defendants also argue that permitting the instant suit to go forward without barring all future suits for personal injury would result in double recovery and double liability.
See
288 F.3d 1012 , 1017 n. 1 (7th Cir.2002) (rejecting certification of nationwide class of consumers seeking damages for reduced value of defective tires). The learned footnote dealing with defects in widgets is of no help in the present case.
Bridgestone
turned on choice-of-law analysis, not double recovery.
See id.
at 1018 (concluding that the applicable state rule of
lex loci delicti
would require utilization of many different state substantive laws, rendering the case unmanageable on a national class action basis). Jurors may take a different view of choices by consumers of cigarettes looking for protection from cancer than they do of choices by purchasers of nonlethal widgets.
Cf.
Joe Nocera, “If It’s Good for Philip Morris, Can It Also Be Good for Public Health?”, N.Y. Times Magazine, June 18, 2006 (quoting Steve Parrish, Altria’s senior vice president for corporate affairs: “We don’t make widgets.”). No language in RICO evidences concern with the possibility that its rule of recovery might lead to “excess precautions” — a phrase itself somewhat out of place in a suit alleging deliberate, long-term deception about serious public and private health concerns.
*1043
For the reasons described in Parts IV.B and IV.C,
infra
(rejecting claim splitting challenge), no double recovery would arise were a plaintiff successful in this suit also to sue for personal injuries stemming from consumption of “light” cigarettes — the claims are distinct and would remedy harms to different proprietary interests.
S. Conclusion on Injury
Plaintiffs’ theory of injury is legally unobjectionable. It is supported by evidence sufficient to withstand summary judgment.
C. Causation and Reliance
1. Law
To recover under civil RICO, a plaintiff must establish an injury to his business or property “by reason of’ the alleged racketeering activity.
See Sedima, S.P.R.L. v. Imrex Co.,
473 U.S. 479, 496 , 105 S.Ct. 3275 , 87 L.Ed.2d 346 (1985) (“[A] plaintiff ... can only recover to the extent that[ ] he has been injured in his business or property by the conduct constituting the violation.”);
Bankers Trust Co. v. Rhoades,
741 F.2d 511, 516 (2d Cir.1984),
vacated and remanded on other grounds,
473 U.S. 922 , 105 S.Ct. 3550 , 87 L.Ed.2d 673 (1985),
on remand, 859
F.2d 1096 (2d Cir.1988) (“the requirement that the injury be ‘by reason of a violation of § 1962 means that there must be a causal connection between the prohibited conduct and the plaintiffs proprietary injury. Thus, it is insufficient for a plaintiff to prove simply a violation by the defendants and a proprietary injury; it must prove that the defendant’s violation caused the injury.”); Douglas E. Abrams,
The Law of Civil RICO
§ 3.3.1 (1991) (“[Section 1964(c)’s ‘by reason of language requires proof that the violation caused the plaintiffs proprietary injury.”).
The “by reason of’ language requires both factual, “but for,” causation and “proximate” causation.
See Commercial Cleaning Servs., L.L.C. v. Colin Serv. Sys., Inc.,
271 F.3d 374, 380 (2d Cir.2001) (“RICO’s use of the clause ‘by reason of has been held to limit standing to those plaintiffs who allege that the asserted RICO violation was the legal, or proximate, cause of their injury, as well as a logical, or ‘but for,’ cause.”).
a. Factual causation
Factual causation is a requirement of every tort.
See generally
Dan B. Dobbs,
The Law of Torts
§ 166 (cause in fact requirement). It is eommonsensical: if a defendant’s action cannot be linked to a harm suffered by plaintiff, he cannot be held liable for it.
b. Proximate causation
The term “proximate causation” is used “to label generically the judicial tools used to limit a person’s responsibility for the consequences of that person’s own acts.”
Holmes v. Securities Investor Protection Corp.,
503 U.S. 258, 268 , 112 S.Ct. 1311 , 117 L.Ed.2d 532 (1992). As it has with identical language in the Clayton Act,
see Associated Gen. Contractors of California, Inc. v. California State Council of Carpenters,
459 U.S. 519, 535-6 , 103 S.Ct. 897 , 74 L.Ed.2d 723 (1983), the Supreme Court has read a proximate cause requirement into civil RICO.
See Holmes,
503 U.S. at 268 , 112 S.Ct. 1311 (“We may fairly credit the 91st Congress, which enacted RICO, with knowing the interpretation federal courts had given the words earlier Congresses had used first in § 7 of the Sherman Act, and later in the Clayton Act’s § 4. It used the same words, and we can only assume it intended them to have the same meaning that courts had already given them. Proximate cause is thus re
*1044
quired.”) (citations omitted).
See also First Nationwide Bank v. Gelt Funding Corp.,
27 F.3d 763, 769 (2d Cir.1994) (RICO’s “by reason of’ clause “requires a showing not only that the defendant’s alleged RICO violation was the ‘but-for’ or cause-in-fact of his injury, but also that the violation was the legal or proximate cause.”).
Though proximate cause had taken many forms at common law, the issue in
Holmes
was “a demand for some direct relation between the injury asserted and the injurious conduct alleged.”
Id.
Little weight was to be put on the Court’s terminology. “[0]ur use of the term ‘direct’ should merely be understood as a reference to the proximate-cause enquiry that is informed by the concerns set out in the text. We do not necessarily use it in the same sense as courts before us have and intimate no opinion on results they reached.”
Id.
at 274 n. 20, 112 S.Ct. 1311 .
The Court in
Holmes
did not attempt to set out a definitive test for proximate cause. “[T]he infinite variety of claims that may arise make it virtually impossible to announce a black-letter rule that will dictate the result in every case.”
Id.
at 274 n. 20, 112 S.Ct. 1311 (quoting
Associated General Contractors,
459 U.S. at 536 , 103 S.Ct. 897 ).
See also Nat’l Asbestos Workers Med. Fund v. Philip Morris, Inc.,
74 F.Supp.2d 221, 223 (E.D.N.Y.1999) (“[Pjroximate causation is a normative, flexible, and highly fact specific doctrine which requires individualized inquiry in each case.”); W. Page Keeton et al.,
Pros-ser and Keeton on the Law of Torts
§ 42 (5th ed.1984) (proximate cause is “always to be determined on the facts of each case upon mixed considerations of logic, common sense, justice, policy and prece-dente]”).
See also Anza v. Ideal Steel Supply Corp.,
— U.S. -, 126 S.Ct. 1991 , 164 L.Ed.2d 720 (2006) (applying
Holmes
as current law).
The Court of Appeals for the Second Circuit has read
Holmes
to imply that the common law torts principles of direct injury, substantial causation, reasonable foreseeability, and the “zone of interests” are “distinct concepts, [each] of which must generally be established by a plaintiff.”
Laborers Local 17 Health and Benefit Fund v. Philip Morris, Inc.,
191 F.3d 229, 235-36 (2d Cir.1999).
See also id.
at 238-39 (holding plaintiff health fund’s suit barred because its financial losses were wholly derivative of injuries to individual smokers; “the critical question posed ... is whether the damages a plaintiff sustains are derivative of an injury to a third party.”).
c. Reliance
i. Reliance is required
When, as here, mail fraud and wire fraud are the alleged predicate acts forming the racketeering activity, justified reliance on the fraud is necessary to satisfy RICO’s causation requirements.
See Metromedia Co. v. Fugazy,
983 F.2d 350, 368 (2d Cir.1992) (“[T]o establish the required causal connection, the plaintiff [must] ... demonstrate that the defendant’s misrepresentations were relied on.”).
See also, e.g., Appletree Square I Ltd. v. W.R. Grace & Co.,
29 F.3d 1283 , 1286 (8th Cir.1994) (“In order to establish injury to business or property ‘by reason of a predicate act of mail or wire fraud, a plaintiff must establish detrimental reliance on the alleged fraudulent acts.”);
Grantham and Mann, Inc. v. Am. Safety Prods.,
831 F.2d 596, 606 (6th Cir.1987) (failure to establish detrimental reliance);
In re Sumitomo Copper Litig.,
995 F.Supp. 451, 458 (S.D.N.Y.1998) (“When the predicate acts [of mail or wire] fraud are alleged, ‘to establish the required caus
*1045
al connection, the plaintiff [is] required to demonstrate that the defendant’s misrepresentations were relied on.’ ”).
But see Anza v. Ideal Steel Supply Corp.,
— U.S. -, -, 126 S.Ct. 1991, 2008 ,, 164 L.Ed.2d 720 (2006) (Thomas, J., concurring in part and dissenting in part) (reaching a question not reached by the majority, i.e., whether reliance is required in a civil RICO suit predicated on mail and wire fraud, and concluding that “[b]ecause reliance cannot be read into [the mail or wire fraud statutes], nor into RICO itself, it is not an element of a civil RICO claim”).
ii. Role of reliance
The Court of Appeals for the Second Circuit has not always stated explicitly, when discussing reliance, what purpose it serves. A fair reading of the cases demonstrates that whether reliance, in itself, satisfies both factual and proximate causation depends on whether the reliance is direct or third-party.
(a) Direct reliance
In cases deriving from predicate acts of mail or wire fraud, plaintiffs may establish reliance sufficient to satisfy RICO’s “by reason of’ language in one of two ways. First, a plaintiff may “claim that he was the direct target of the fraudulent scheme. In that case, to plead causation, [the] plaintiff would have to allege that he himself relied on the underlying misrepresentations to his detriment.”
Sterling Interiors Group, Inc. v. Haworth, Inc.,
No. 94-9216, 1996 WL 537482 , at *4 (S.D.N.Y. Sept. 23, 1996). Proof of injury by the intended victim of a scheme is a prototypical example of proximate cause.
See, e.g.,
Restatement (Second) of Torts § 525 (1977) (“One who fraudulently makes a misrepresentation of fact, opinion, intention or law for the purpose of inducing another to act or to refrain from action in reliance upon it, is subject to liability to the other in deceit for pecuniary loss caused to him by his justifiable reliance upon the misrepresentation.”). Direct reliance satisfies proximate causation.
(b) Third-party reliance
As a second possibility, a plaintiff may allege that his injuries were caused by a third party’s reliance on fraudulent scheme.
See, e.g., County of Suffolk v. Long Island Lighting Co.,
907 F.2d 1295, 1300, 1311 (2d Cir.1990) (permitting plaintiff county and utility ratepayers to sue on theory that defendant utility had testified falsely before the state Public Service Commission, which granted the utility the right to increase rates in reliance on the false testimony). Proof of third-party reliance will not always satisfy RICO’s requirement of proximate causation.
See 2 Civil RICO Litigation
§ 8.04[B][l][a] (“[I]f the defendant’s misrepresentations cause a third party to take actions causing plaintiffs injury, the factual causation link is satisfied. Whether such injury should nevertheless be deemed too remote to permit recovery under [civil RICO] is a matter of proximate causation analysis, not causation-in-fact.”).
Cf. Anza v. Ideal Steel Supply Corp.,
— U.S. —, 126 S.Ct. 1991 , 164 L.Ed.2d 720 (2006) (proximate cause not met where government agency, not plaintiff, relied on defendant’s alleged mail and wire fraud).
d. Transaction causation and loss causation
The Court of Appeals for the Second Circuit has, in the context of RICO suits alleging fraud in commercial finance transactions, said that plaintiffs must show “transaction causation” and “loss causation.”
See, e.g:, Moore v. PaineWebber,
189 F.3d 165 (2d Cir.1999) (plaintiffs alleged that financial service company mis
*1046
represented life insurance policies as Individual Retirement Accounts, causing them to purchase the policies instead of investing their money in more profitable ways);
First Nationwide Bank v. Gelt Funding Corp.,
27 F.3d 763 (2d Cir.1994) (defendant mortgage broker misrepresented to plaintiff commercial lender the operating income of properties in order to secure loans on those properties, and then defaulted, causing substantial losses);
Citibank, N.A. v. K-H Corp.,
968 F.2d 1489 (2d Cir.1992) (defendants made false representations to lender in order to secure an extension of credit). Defendants contend that the same “transaction causation” and “loss causation” principles apply to the present consumer fraud -case, and that plaintiffs cannot meet these requirements.
The doctrines are inapplicable. Transaction causation would require plaintiffs to demonstrate that, “but for the defendant[s’] wrongful acts, the plaint

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/2509140. Public record. Not legal advice.