Petition for Writ of Certiorari — Blumenthal v. Philip Morris, Inc.

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1997

RICHARD BLUMENTHAL, ATTORNEY GENERAL

OF CONNECTICUT,

Petitioner,

vs.

PHILIP MORRIS, INC., ET AL.,

Respondents.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF

APPEALS FOR THE SECOND CIRCUIT

*RICHARD BLUMENTHAL

Attorney General of Connecticut

GREGORY T. D’AURIA

*ELIOT D. PRESCOTT

Assistant Attorney General

Office of the Attorney General

55 Elm Street

P.O. Box 120

Hartford, Connecticut 06141-0120

(860) 808-5020

*Counsel of Record

No.

: IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1997

RICHARD BLUMENTHAL,

ATTORNEY GENERAL OF CONNECTICUT

Petitioner

PHILIP MORRIS, INC., ET AL

Respondents

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

*RICHARD BLUMENTHAL

ATTORNEY GENERAL

OF CONNECTICUT

Gregory T. D'Auria

*Eliot D. Prescott

Assistant Attorney General

Office of the Attorney General

55 Elm Street

P.O. Box 120

Hartford, CT 06141-0120

(860) 808-5020

*Counsel of Record

UESTIONS PRESENTED

1. Did the Court of Appeals demonstrate the proper re-

spect for the State's sovereign interests in prosecut-

ing a statutory sovereign enforcement action under

its unfair trade practices and antitrust acts, as re-

quired by the federalism. principles recognized in

Younger v. Harris, when it disregarded the stated

sovereign enforcement aspects of and the broad in-

junctive relief sought in the State's action, and in-

stead characterized the action as one for money

damages only?

Do the federalism principles underlying Younger vy.

Harris permit a federal court to disregard the pur-

poses for a State's pending action asserted in the

State's Complaint and recharacterize the action con-

trary to the State's pleading, for purposes of deter-

mining whether the action implicates an important

State interest under Younger?

3. Does the State of Connecticut's state court sovereign

enforcement action against four tobacco companies,

brought pursuant to the explicit provisions of Con-

necticut's unfair trade practices and antitrust acts,

which empower the sovereign, on behalf of the State

and its citizens, to bring actions to remedy violations

of the acts, and seeking broad injunctive and equita-

ble relief, as well as damages, to remedy one of the

most massive conspiracies, frauds and restraints of

trade in our nation's history, implicate an "important

State interest" for purposes of applying the Younger

abstention doctrine?

In determining the importance of the State interest

implicated by a State's action for purposes of

(i)

applying Younger, may a federal court -- consistent

with principles of federalism -- disregard the allega-

tions of a State's complaint, reject the basis for the

State's action asserted in and the relief sought in the

Complaint, and and recharacterize the gravamen of

and the "primary aim" of the action contrary to the

State's pleading?

(it)

LIST OF PARTIES

In both the United States District Court for the Dis-

trict of Connecticut and the United States Court of Appeals

for the Second Circuit, the plaintiffs were Philip Morris,

Inc., R.J. Reynolds Tobacco Co., Brown & Williamson To-

bacco Corporation, USA, and Lorillard Tobacco Co.

The defendant in-both courts below was Richard

Blumenthal, Attorney General for the State of Connecticut.

(iii)

TABLE OF CONTENTS

QUESTIONS PRESENTED o.0. jis cec ceed eee ecea eee M

LAL: SIE FEMMES ra AS FAOES NA fea Racdq hes poem ee tas itt

OPINIONS OF THE COURTS BELOW ............. vi

Rey bt ROI NRPRUA DG RNR eee ic Stig ae tg ENE 2

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED ............0.0.. cee uen cee 2

STATEMENT OF THE CASE oo... 0. iio eee es 2

ASF IEEE Gee LGA aa eae ERO alek See LER EET: 7

I. THE YOUNGER DOCTRINE AND ITS

UNDERLYING PRINCIPLES OF

FEDERALISM, COMITY AND JUDICIAL

~ ECONOMY REQUIRE DEFERENCE TO A

STATE PROCEEDING ADVANCING AN

IMPORTANT STATE INTEREST. ........... 9

Il. INEVALUATING THE IMPORTANCE OF

THE STATE'S INTEREST, A FEDERAL

COURT MUST CONSIDER THE

"IMPORTANCE OF THE GENERIC

PROCEEDINGS" TO THE STATE, AND

NOT FOCUS ON "OUTCOMES" OR

ATTEMPT TO DECIDE STATE LAW

8S SEE 8 | RR Rb a CS 1]

Ill. UNDER THE YOUNGER DOCTRINE,

CONNECTICUT'S STATE COURT

ACTION CLEARLY SEEKS TO

VINDICATE SEVERAL IMPORTANT

SEALS DER EO eA leone bale es 17

CONCRAIOMIOE sco kc Sedat ya Nw Emon Fhe views ancien 22

APPENDIX TABLE OF CONTENTS

(iv)

Cases:

California v. Arc America Corp., 490

5B cS RO RRP EUR er vor Sor tenis beeen 18

Commission on Special Revenue v.

FOIC, 174 Conn. 308, 387 A.2d

~ 2 AG 5. | RIES AN COMA dine ces Me erate eR niet CTY 6

Hood v. Commissioner of

Agriculture, 764 F. Supp. 662

AP RR hoa es de ow sho ceeds ce eke 16

In re Valerie D., 223 Conn. 492, 613

PM TO TEER le ce iN Spo ey 19

Mangini v. R.J. Reynolds Tobacco

Co., 7 Cal. 4th 1057, 875 P.2d

73, cert. denied, 115 S.Ct. 577

Gc. RUDENESS LG OA ESCO ete ae AA 19

Middlesex County Ethics Comm. v.

Garden State Bar Association,

BOG: Sie MER RR PORR Soi ore uae hk wean, 10, 11, 18

Moore v. Sims, 442 U.S. 415 (1979) .............. 10, 19

NOPSI v. Council of New Orleans,

SPER DOE TPO Nee pa ks en ae ba eho passim

Pennzoil Co. v. Texaco, 481 U.S. 1,

EELS PORE Cuia ioievisvaraiaueiecy ees} 10, 11, 16, 20

Philip Morris, Inc. v. Blumenthal,

949 F. Supp. 93 (D.Conn. 1996) ................ fA

Philip Morris, Inc. v. Blumenthal,

123 F.30 103:(20 Cir 1997). 26 oc see. passim

Philip Morris v. Harshbarger, 946

F.Supp. 1067 (D. Mass. 1996) ................... 14

Younger v. Harris, 401 U.S. 37

“fy 04 SSSR PER ha ean pe aaa allg aes MeO BENT a RD passim

Statutes:

CE CUR SUUMNE: @ Bm ER oy bac G asad erate reecepawuees 6

A, OU UR, PD Ue ec hei ae eee deue 5

CU SO AU EE TR ee ay roe week bares 5

CAMS EI UN, OO a cae iS anges rosea siaatl 4

NE ROU NE OSE pc asi youve ci eer uns 6, 18

CO SA SOME Oe ae iinacils kuney Phun ea ers 6

CE CSU Ns SO EP ioe clea oan 4,5, 18

Cont Cite: Sieh Sea a ee Be iN pea aie 19

Pg ek RAE Be) | OS BURR AR AR SDN it neon tee eRe Ia 2

4 US VEY >. & SEamRUALe Ra ROOM TRD UiBe TREE AOC rR LED gL 3

nog RE SRR 55 70> RMR SE a OME PR eG (OR 2

SRT Rs OE CaN Coe Sans EOLA Eee 3

Rules and Regulations:

Supreme Court Rule 10.1(a) & (c) .........0...0.0.00.. 9

ee ee te

;

}

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1997 |

RICHARD BLUMENTHAL,

ATTORNEY GENERAL OF CONNECTICUT

Petitioner

PHILIP MORRIS, INC., ET AL

Respondents

PETITION FOR WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

SECOND CIRCUIT

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT

OF APPEALS FOR THE SECOND CIRCUIT

The Petitioner, Richard Blumenthal, Attorney Gen-

eral for the State of Connecticut, prays that this Court issue

a writ of certiorari to review the judgment of the United

States Court of Appeals for the Second Circuit.

OPINIONS OF THE COURTS BELOW

The order of the United States Court of Appeals for

the Second Circuit denying the petitioner's Petition For Re-

hearing and Suggestion For Rehearing In Banc, dated

November 24, 1997, is unreported and is printed in the ap-

pendix to this petition at App. Al. The opinion of the

United States Court of Appeals for the Second Circuit en-

tered on September 12, 1997, is reported at Philip Morris,

Inc. v. Blumenthal, 123 F.3d 103 (2d Cir. 1997), and is

printed in the appendix to this petition at App. A3.

The memorandum of decision of the United States

District Court for the District of Connecticut, Dorsey, C./.,

dated December 23, 1996, is reported at Philip Morris, Inc.

v. Blumenthal, 949 F. Supp. 93 (D.Conn. 1996), and is

printed in the appendix to this petition at App. Al4.

JURISDICTION

The United States Court of Appeals for the Second

Circuit entered judgment on September 12, 1997. The peti-

tioner timely filed a Petition For Rehearing and Suggestion

For Rehearing In Banc, which the United States Court of

Appeals for the Second Circuit denied on November 24,

1997. The petitioner invokes the jurisdiction of this Court

under 28 U.S.C. § 1281(1). This petition is filed within

ninety days of the Court of Appeals’ ruling dated November

24, 1997. Supreme Court Rule 13.1; 28 U.S.C. §2101(c).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

[Reprinted In Appendix]

STATEMENT OF THE CASE

Or. July 1, 1996, the respondents, Philip Morris,

Inc., R.J. Reynolds Tobacco Co., Brown & Williamson To-

bacco Corp. and Lorrillard Tobacco Co., ("the tobacco

companies") instituted this action against the petitioner,

Connecticut Attorney General Richard Blumenthal, seeking

to bar the State of Connecticut from "prosecuting or

imposing or enforcing the liability" on them pursuant to a

"Threatened Lawsuit" that -- the tobacco companies con-

tend -- would violate their federal constitutional rights. (JA

11)

In their Complaint, the tobacco companies seek de-

claratory and injunctive relief from this "Threatened Law-

suit" in each of nine Claims for Relief.” According to the

tobacco companies, (i) it would violate the Commerce

Clause and the First, Fifth and Fourteenth Amendments for

the State to seek to recover health care costs paid by the

State through its Medicaid program as a remedy for their al-

leged unlawful conduct; (ii) the State's "Threatened Law-

suit" is preempted by federal laws; and (iii) the State's

"Threatened Lawsuit" would violate Connecticut's constitu-

tion, statutes and common law.

Although the tobacco companies contended that

they would suffer irreparable harm from the State's filing of

its "Threatened Lawsuit," none of them sought preliminary

injunctive relief at the time they filed their federal Com-

plaint, nor took any action in federal court thereafter to pur-

sue their claims.

On July 18, 1996, the State of Connecticut in fact

served and filed a state court action against the four respon-

dent tobacco companies in this matter, as well as against

three other tobacco companies and three entities affiliated

with the tobacco industry.” (The State of Connecticut's

” The tobacco companies’ First through Seventh and Ninth Claims

for Relief are brought pursuant to the Federal Declaratory

Judgment Act, 28 U.S.C. § 2201, and their Eighth Claim for relief

is brought pursuant to the Civil Rights Act, 42 U.S.C. § 1983.

(JA 27 to 38)

The State's lawsuit, State of Connecticut v. Philip Morris, Inc., et

al., Docket No. CV 96-0072414 S (Judicial District of Litchfield)

named as defendants, in addition to the four respondents in this

case, B.A.T. Industries P.L.C., Liggett Group, Inc., United States

’ State Court Complaint is reprinted in the Appendix at A18)

This action, now pending in Connecticut Superior Court,”

details a course of fraudulent and illegal conduct by the to-

bacco companies dating back to 1953 and continuing to

date, including the knowing concealment and misrepresenta-

tion of scientific information concerning the health dangers

of their products, the misrepresentation of the addictive na-

ture of their products, the targeting of minors, and an un-

lawful conspiracy in restraint of trade. The Complaint

asserts that the state court defendants, individually and in

concert, have participated in a course of deceptive, unfair

and wrongful conduct intended to mislead public about

the health dangers and addictive nature/of théjr products,

have unlawfully marketed their products to minors, and

have engaged in a continuing conspiracy to_restrain trade, in

violation of the Connecticut Unfair Trade Practices Act

("CUTPA"), Conn. Gen. Stat. § 42-110a, et seg.; the Con-

necticut Antitrust Act, Conn. Gen. Stat. § 35-24, et seq;

and Connecticut common law.

The Complaint seeks broad injunctive and other eq-

uitable relief, including the entry of orders:

Tobacco Co., Hill and Knowlton, the Council For Tobacco

Research - U.S.A., Inc. and the Tobacco Institute, Inc.

’ The State of Connecticut initially filed its action in Connecticut

Superior Court, Judicial District of Stamford. On August 5, 1996,

the ten tobacco defendants in Connecticut's removed that action to

federal court, claiming federal question jurisdiction. The District

Court, Arterton, J., granted Connecticut's motion to remand to

state court, holding that the tobacco defendants’ attempt to

manufacture federal jurisdiction “borders on the frivolous."

Subsequent to remand, the State's action was assigned to one

judge, who is presently sitting in the Judicial District of Litchfield,

where the action is now docketed.

VER Vie Airey be WL ES

(i) enjoining the defendants’ unlawful

conduct’

(ii) requiring implementation of funding of

remedial programs;

(iii) requiring restitution to consumers and

the State for harms caused by the to-

bacco companies' harmful conduct;

(iv) requiring disgorgement of defendants’

wrongfully gained profits; and

(v) assessing civil penalties under CUTPA

and the Connecticut Antitrust Act.

(A127 to A132)

The State's Complaint also requests actual and statu-

tory treble damages under Connecticut's Antitrust Act, in-

cluding actual damages for harm to the general economy of

the State (A129), along with claims for disgorgement and

damages for harm to consumers, as provided for under

CUTPA, Conn. Gen. Stat § 42-110m. (A130 to A132)

In addition, the complaint seeks as one aspect of

damages, but only one aspect, an award for the increased

expenses the State has incurred as a result of the defendants'

wrongful conduct, including, but not limited to, restitution

or reimbursement of Connecticut's increased expenses under

the State's Medicaid and General Assistance Medica! Assis-

tance programs as a result of tobacco-related illnesses.

(A131) See Conn. Gen. Stat. §17b-260 ef seg.; § 17b-220

et seq.

The Commissioner of Consumer Protection of the

State of Connecticut authorized and requested the CUTPA

claim asserted in the State's Complaint pursuant to his statu-

tory authority to monitor, investigate and take action to pre-

vent unfair and/or deceptive trade practices affecting the ©

Connecticut public. See Conn. Gen. Stat. §§ 42-110d, 110k,

110m & 110n. In particular, the Commissioner has acted

pursuant to Conn. Gen. Stat. § 42-110m, which empowers

him to request the state Attorney Geneffl to prosecute ac-

tions to enjoin ongoing unfair trade practices and obtain res-

titution and other equitable relief for such unlawful conduct.

The Commissioner is an appointee of the Governor, the

head of Connecticut's executive branch.

The antitrust claim has been instituted pursuant to

the statutory authority the Connecticut General Assembly

has conferred upon the state's Attorney General, a state

constitutional officer, to investigate, monitor and take ac-

tion against unlawful restraints of trade in the State, see

Conn. Gen. Stat. §§ 35-32(a) & 35-42, and asserts claims,

parens patriae, on behalf of the residents of the State of

Connecticut, and on behalf of the State itself; as expressly

authorized by the Connecticut General Assembly. See -

Conn. Gen. Stat. §§ 35-32(c)(1) & (2).

The Attorney General has brought the common law

counts in his capacity as the state's chief legal officer, with

the duty to act in the state's best legal interest. Conn. Gen.

Stat. § 3-125; Commission on Special Revenue v. FOIC,

174 Conn. 308, 318-19, 387 A.2d 533 (1978).

The tobacco companies’ federal Complaint expressly

acknowledges that it was filed in anticipation of the State's

lawsuit, which was filed less than three weeks after the to-

bacco companies’ Complaint here. (JA 9; 11) No substan-

tive proceedings of any kind took place in the District Court

on the tobacco companies' action, either prior to or after the

initiation of the State's action. Further, the tobacco compa-

nies make no allegation in their federal Complaint that Con-

necticut's state courts will be unable or will refuse to

resolve, fully and fairly, the claims asserted in the State's ac-

_ tion, including any federal constitutional or statutory de-

fenses the tobacco companies may assert.

Concurrent with the institution of the State's action,

the petitioner moved to dismiss the tobacco companies’

Complaint in this case on the grounds of Younger absten-

tion, arguing that the tobacco companies had brought the

action solely to disrupt the State of Connecticut from ap-

propriately and lawfully vindicating its sovereign interests in

state court. The District Court, Dorsey, C.J., agreed and

granted the motion on December 23, 1996. Philip Morris,

Inc. v. Blumenthal, 949 F. Supp. 93 (D.Conn. 1996).

The tobacco companies appealed to the United

States Court of Appeals for the Second Circuit, which re-

versed and remanded, on the ground that the State's action

did not, in that Court's view, implicate any important state

interest. The Court ruled that it could disregard the State of

Connecticut's state court allegation of a sovereign enforce-

ment action, look behind the State's asserted purposes and

characterize the action as merely a subrogation action, the

"primary aim" of which was to recover money damages.

Philip Morris, Inc. v. Blumenthal, 123 F.3d 103 (2d Cir.

1997). After the Court of Appeals' denied his Petition For

Rehearing and Suggestion For Rehearing In Banc, the peti-

tioner has filed this petition.

REASONS FOR GRANTING THE WRIT

The Court should grant this petition and issue the

writ because the Court of Appeals’ decision raises important

issues regarding the application of Younger v. Harris, 401

U.S. 37 (1971), and its progeny.

Specifically, the Court of Appeals' opinion raises

critical issues regarding Younger’s application in this and fu-

ture actions, including whether a federal court in determin-

ing whether a State's action involves and important state

interest for Younger purposes is permitted to disregard the

aaa ae 7

State's asserted interests in favor of its own characterization

of the lawsuit?

To reach its conclusion, the Court of Appeals took

the liberty of disregarding the legal theories the State had

asserted in its lawsuit in favor of the federal court's own,

unsupported recharacterization of the lawsuit. Contrary to

the Court of Appeals’ belief, a federal court does not have

the authority to make unsupported assumptions about the

theory of recovery posited in a state court action or about a

sovereign enforcement action's "primary aim." In this re-

gard, the Court of Appeals did not undertake the proper in-

quiry directed by NOPSI v. Council of New Orleans, 491

U.S. 350 (1989). Rather than f@using on the "importance

of the generic proceedings to the State," as this Court has

instructed; id. at 365; the Court of Appeals instead focused

on one of the "outcomes" the State's lawsuit seeks: money

damages. By its fundamental mischaracterization of the na-

ture Connecticut's state court action against the tobacco

companies and profound misapprehension of the nature and

importance of the interests the State seeks to vindicate by

its action, the Court of Appeals failed to pay the proper re-

spect to State sovereignty that the Younger doctrine

demands.

Finally, the Court of Appeals' determination that

Connecticut's sovereign enforcement action against the to-

bacco companies implicates no important state interest, in

addition to defying logic, is plainly inconsistent with this

Court's precedents. The State's action alleges one of the

most massive conspiracies, frauds and restraints of trade in

our nation's history, inflicting great damage upon the State

and its citizens. The State's action seeks broad remedial re-

lief aimed at the grave injuries the tobacco companies’ con-

duct and their products have inflicted upon the public's

health. It is impossible to ignore the importance of these

goals in light of the historic national settlement presently

pending in Congress. This proposed settlement, which

would include a settlement of Connecticut's lawsuit and

which was negotiated by several state attorneys general, in-

cluding the petitioner, and representatives of all of the re-

spondents, contains many of the same remedial initiatives

claimed in the Connecticut's state court lawsuit, which the

respondents and the Court of Appeals simultaneously argue

manifest no significant state interest.

It is therefore inconceivable that the State's action

does not implicate several important state interests. The

Court of Appeals' dismissive treatment of the State's inter-

ests in this case is an affront to the State and its citizens, and

displays none of the "sensitivity to the legitimate interests"

of the State governments that Younger counsels federal

courts to engage in.

. All of these "special and important reasons" warrant

this Court's granting of the petition. The Court of Appeals'

decision "so far depart[s] from the accepted and usual

course of judicial proceedings," and decides "an important

question of federal law which has not been, but should be

settled by this Court," in addition to deciding a "federal

question in a way that conflicts with applicable decisions of

this court." Supreme Court Rule 10.1(a) & (c).

I. THE YOUNGER DOCTRINE AND ITS

UNDERLYING PRINCIPLES OF FEDERALISM,

COMITY AND JUDICIAL ECONOMY REQUIRE

DEFERENCE TO A_ STATE PROCEEDING

ADVANCING AN IMPORTANT STATE INTEREST.

“Younger . . . and its progeny espouse a strong fed-

eral policy against federal-court interference with pending

state judicial proceedings absent extraordinary

circumstances.” Middlesex County Ethics Comm. v. Gar-

den State Bar Ass'n, 457 U.S. 423, 431 (1982) (emphasis

supplied). As Justice Black eloquently stated for the Court

in Younger, the policy is based, in part, on the traditional

constraints on equity courts, but also on the

even more vital consideration, the notion of

‘comity,’ that is, a proper respect for state

functions, a recognition of the fact that the

entire country is made up of a Union of sepa-

rate state governments, and a continuance of

the belief that the National Government will

fare best if the State and their institutions are

left free to perform their separate ways.

This, perhaps for lack of a better and clearer

way to describe it, is referred to by many as

"Our Federalism."

Younger v. Harris, 401 U.S. 37, 44 (1971). In addition, the

doctrine of Younger abstention seeks to avoid duplicative

legal proceedings and "to avoid unwarranted determination

of federal constitutional questions." Pennzoil Co. v.

Texaco, 481 U.S. 1, 11 (1987).

Although Younger itself concerned a pending state

criminal action, the doctrine "is also fully applicable to civil

proceedings in which important state interests are involved."

Moore v. Sims, 442 U.S. 415, 423 (1979) (applying

Younger abstention to state court child-abuse proceeding).*

“Thus, where important state interests are involved, this Court has

repeatedly held that comity, federalism and judicial economy

require that federal courts avoid interference with a state's

legitimate processes. See e.g., Huffman v. Pursue, Ltd., 420 U.S.

592, 603-06 (1975) (Younger applies with equal force to civil

proceedings brought by state to promote sovereign interests);

Trainor v. Hernandez, 431 U.S. 434, 443-44 (1977) (Younger

applies to suits by state in its role of administering its public

assistance programs in light of important state interest in

Thus, to determine if Younger abstention is appro-

priate, a Court must determine that: (1) there is an ongoing

state proceeding; (2) an important state interest is impli-

cated; and (3) there is an adequate opportunity in the state

court proceeding to raise constitutional challenges.

Middlesex County Ethics Comm. v. Garden State Bar Asso-

ciation, 457 U.S. 423, 432 (1982). The Court of Appeals

easily determined that there was an ongoing state proceed-

ing and that the tobacco companies could obtain review of

their federal claims in state court. Philip Morris, Inc. v.

Blumenthal, 123 F.3d 105 (2d Cir. 1997). The Court went

on, however, to state: "we do not find that the federal (sic)

action implicates an important state interest within the

meaning of Younger." Jd. This conclusion simply defies

logic, ignores this Court's precedent and egregiously in-

fringes upon the State's sovereign interests. :

)

I. IN EVALUATING THE IMPORTANCE OF

THE STATE'S INTEREST, A FEDERAL COURT

MUST CONSIDER THE "IMPORTANCE OF THE

GENERIC PROCEEDINGS" TO THE STATE, AND

NOT FOCUS ON "OUTCOMES" OR ATTEMPT TO

DECIDE STATE LAW QUESTIONS.

In NOPSI v. Council of New Orleans, 491 U.S. 350,

375 (1989), this Court stated

[I]t is clear that the mere assertion of a sub-

stantial constitutional challenge to state

safeguarding the fiscal integrity of those programs); Middlesex

County Ethics Comm. v. Garden State Bar Association, 457 U.S.

423, 432 (1982) (reiterating that Younger applies to state's civil

proceedings "necessary for the vindication of important state

policies"). In fact, the Court has applied Younger’ even to civil

proceedings in which the state is not itself a party. Pennzoil Co.

v. Texaco, 481 U.S. 1, 11 (1987) (Younger applies in lawsuit

between private parties).

action will not alone compel the exercise of

federal jurisdiction... . That is so because

when we inquire into the substantiality of the

State's interest in its proceedings we do not

look narrowly to its interest in the outcome

of the particular case -- which could argua-

bly be offset by a substantial federal interest

in the opposite outcome. Rather, what we

look to is the importance of the generic pro-

ceedings fo the State. (emphasis supplied).

While paying lip service to this standard, Philip Morris, Inc.

v. Blumenthal, 123 F.3d 103, 106 (2d Cir. 1997), the Court

of Appeals in fact disregarded it, concluding that Connecti-

cut's state court action did not concern "central sovereign

functions of the state government," and adopting wholesale,

with no analysis, the tobacco companies' characterization of

the State's lawsuit as "primarily" or "essentially" one for

money damages.

The Court of Appeals reasoned:

Although the state pleads its action in state

court as an enforcement action pursuant to

CUTPA and the state antitrust law to pre-

vent deception and unfair and anticompeti-

tive business practices -- arguably important

state interests -- the underlying claim_is

more accurately classified as a subrogation

action grounded in tort. Notwithstanding

certain other claims, the primary aim of the

state is to obtain reimbursement from the to-

bacco industry for expenditures caused by its

allegedly tortious conduct. This purpose has

little to do with eradicating unfair trade prac-

tices or anticompetitive practices.

/d. (emphasis supplied). It then labeled the State's action as

"essentially a suit for money damages." /d. The Court of

Appeals therefore dissected the State's Complaint, ignored

its public health and consumer protection aspects and ar-

rived at its own characterization of the action. This charac-

terization is not only conclusory and inaccurate, but is not a

federal court's to make and is contrary to NOPSI.

It is the paradigm of understatement, particularly in

this case, to describe the State's CUTPA and antitrust laws

as implicating "arguably" important interests. The State's

action alleges one of the largest consumer deceptions (con-

cealing smoking's health hazards and addictiveness), re-

straints of trade (conspiring to suppress development of a

less hazardous product) and unfair trade practices (purpose-

fully marketing to minors, who cannot legally purchase to-

bacco products, to replace those killed by the products) in

this nation's history. The relief sought seeks to remedy the

grave injury to public health inflicted by this conduct. Nev-

ertheless, the Court of Appeals held that despite these im-

portant interests, "the underlying claim is more accurately

classified as a subrogation action." Both parts of this state-

ment are unsupportable.

Taking the latter part first, the State's action can in

no way be described as a subrogation claim. To the con-

trary, the State purposely drew its Complaint to make clear

that its claims are in no way derivative of the claims of indi-

vidual consumers harmed by the tobacco companies’ prod-

ucts and/or conduct, but rather seek damages for direct

harm to the State caused by the tobacco companies’ con-

duct. As an example, the CUTPA claim can in no way be

characterized as a subrogation claim because it does not

pray for general damages, such as are available under Conn.

‘Gen. Stat. § 42-110g, but rather is a sovereign enforcement

action, brought at the request the Commissioner of Con-

sumer Protection under Conn. Gen. Stat. § 42-110m that

seeks restitution and other equitable relief to remedy wrong-

ful or deceptive conduct.

The proper characterization of the types of claims

the State's action alleges, and the determination of whether

they are cognizable, is a State law question, and one that is

presently pending before a State court judge who has re-

ceived hundreds of pages of briefs on the issue. In fact, al-

though the tobacco companies contend that the State's

causes of action are non-cognizable, they have acknowl-

edged that the State's action is not a subrogation claim at

all.” It is not for a federal court to characterize the grava-

men of the State's action for purposes of determining

whether to apply comity and federalism principles underly-

ing Younger. In fact, the principles of comity and federal-

ism underlying the Younger doctrine prevent such a

characterization. Thus, classifying the State's action as one

of subrogation is not only inaccurate, but improper.

As importantly, the State's claims for Medicaid reim-

bursement, however characterized, in no way "underlie" its

CUTPA and antitrust claims. The State's legal claims, even

~ In Philip Morris v. Harshbarger, 946 F.Supp. 1067 (D. Mass.

1996), upon which the Court of Appeals relied for this conclusion,

the District Court accepted the tobacco companies’ argument that

an action that Massachusetts brought against them in state court

did not involve important state interests. Describing the action as

merely "a suit for money damages; id. at 1077; the District Court

held that the Massachusetts action "is seeking a remedy that is

classically in the nature of subrogation." /d.

Beyond the fact that the State disagrees with this characterization,

and as detailed in the defendant's appellee brief, the District Court

in Harshbarger did not have before it classic state sovereign

enforcement claims that the District Court in the instant case did:

the CUTPA and antitrust claims. Thus, the District Court in this

case correctly distinguished Harshbarger on this ground.

RE RE eet ee Se ..

eee ere eee

if involving some overlapping facts, are independent of one

another and do not rise or fall together. This misunder-

standing and mischaracterization was critical to the Court of

Appeal's holding, Under its reasoning, if the State only al-

leged CUTPA and antitrust violations, Younger abstention

would be appropriate because those statutes implicate im-

portant state interests. The minute a claim seeking reim-

bursement is injected into the case, however, the Court of

Appeals holds that the State's expectation of comity van-

ishes and the federal court's respect for the state's legitimate

processes is no longer due. By this theory, perhaps thou-

sands of actions brought by sovereign states in the con-

sumer protection, anti-trust, environmental and health-care

fraud areas would be liable to preemptive collateral federal

lawsuits if they seek monetary recovery, notwithstanding

the extremely important interests they otherwise seek to

vindicate. This is a practical result the federal judiciary

should not tolerate.

Still, the Court of Appeals states that Connecticut's

action is "essentially" one for money damages, with a "pri-

mary aim" of reimbursement. The only support for this

characterization, however, is the tobacco companies’ bald

assertion. The District Court heard no evidence on what

the "primary aim" of the lawsuit was, and, if anything, found

that this was not the primary aim. The only evidence of re-

cord on this point is the State of Connecticut's state court

Complaint, and the Court of Appeals fails to explain how

the terms of that Complaint support its conclusion. The

Court of Appeals cites no Younger case permitting a federal

court or a federal plaintiff to characterize the "primary aim"

of a sovereign's State court suit.

Moreover, NOPSI directs federal courts not to focus

"narrowly" on "outcomes." The Court of Appeals simply

and erroneously ignored this admonition by focusing on the

money damages aspect of the State's action. The fact that

the State's action seeks a great deal of money damages

(damages commensurate with the damage inflicted and the

culpability of conduct) is immaterial. The State of Illinois in

Trainor v. Hernandez, 431 U.S. 434 (1977), sought only

money damages, however. Pennzoil Co. v. Texaco, Inc.,

481 U.S. 1 (1987), too concerned only money damages, and

only private parties.

Hood v. Commissioner of Agriculture, 764 F. Supp.

662 (D. Me. 1991), is illustrative of a proper Younger

analysis. Hood involved an enforcement action by the state

commissioner of agriculture to collect money a milk dealer

owed to a state "milk pool." The dealer countered with a

federal suit, claiming the state's action violated the federal

constitution. In response to the State's abstention argu-

ment, the milk dealer claimed that the state suit was merely

a "collection action," thus implicating no important state in-

terest. In entering a Younger dismissal and rejecting the

dealer's characterization, the court noted that "Pennzoil and

Trainor could, by Hood's diminutive characterization, be re-

duced to mere collection actions. To the contrary, how-

ever, both involved important state interests." /d. at 670.

The Court went on to observe, correctly, that in "determin-

ing whether the State's interest is important enough to war-

rant abstention, .. . the focus is not on the state's immediate

interest in the outcome of the specific suit in question, but

on a state's overall interest in enforcing or reviewing actions

affecting the'interests governed by the applicable state stat-

ute or regulation." /d. The Court therefore refused to con-

fine its focus "to whether Maine has a right to collect the

sum of money” Hood allegedly owed. /d. "Rather, the

question is, more broadly, whether Maine has a right to en-

force and collect payments from parties under the Maine

milk laws in order to protect the important interests of the

state for which those laws were designed." Jd.

Similarly in this case, the focus should be not upon

the sum of money that the State of Connecticut demands,

or, as NOPSI referred to it, "the outcome." Rather, the fo-

cus for Younger purposes should properly be on the impor-

tant interests that Connecticut seeks to protect, and which

the laws upon which the State relies were designed to

protect.”

I. UNDER THE YOUNGER DOCTRINE,

CONNECTICUT'S STATE COURT ACTION

CLEARLY SEEKS TO VINDICATE SEVERAL

IMPORTANT STATE INTERESTS.

The State's action in fact has several aims, and can-

not be categorized as simply as the Court of Appeals sug-

gested. Specifically, the State's action implicates state

interests in protecting trade and commerce by preventing

deceptive, unfair and/or anti-competitive trade practices, in

protecting the welfare of minors and all State residents, and

in preserving the public assistance programs' fiscal integrity.

The importance of these interests to the State is illustrated

by the Connecticut General Assembly's grant of pervasive

civil investigative and enforcement powers to the

* Finally, the Court of Appeals also adopted wholesale the tobacco

companies’ claim that their federal action seeks only to interfere

with the part of the State's suit claiming recovery of Medicaid and

other health care costs. Philip Morris, Inc. v. Blumenthal, 123

F.3d 103, 106 n.2 (2d Cir. 1997). Their prayer for relief in this

action is much more sweeping and directly contradicts this

characterization. (JA A-38 to A-41) Further, there is no

precedent to support parsing the State's claims for relief and

challenging a portion of them in a federal injunctive action to

avoid Younger abstention. To the contrary, NOPS/ instructs

courts to look to "the importance of the generic proceedings to the

State."

Commissioner of Consumer Protection and Attorney Gen-

eral to safeguard these interests. The Court of Appeals’

holding that the State's action does not involve an important

state interest is inconsistent with a number of this Court's

precedents.

1. Preventing Deceptive, Unfair and Anti-

competitive Business Practices - The State's Complaint al-

leges that the tobacco companies have engaged in unfair and

deceptive as well as anti-competitive trade practices through

their conspiratorial campaign to misrepresent and conceal

from Connecticut consumers the negative health conse-

quences of tobacco use and the addictive nature of nicotine

-- misrepresentations and concealments designed to enhance

sales of their tobacco products. The General Assembly's

grant of broad and express civil police power to the State's

Commissioner of Consumer Protection and Attorney Gen-

eral clearly demonstrates the importance it places on pre-

serving unfettered and fully-informed trade and commerce.

See Conn. Gen. Stat. §§ 35-32(c); 42-110d(d) & (e);

42-110m.

Similarly, this Court has long recognized the regula-

tion of trade and commerce as fundamental and traditional

areas of state activity. See California v. Arc America

Corp., 490-U.S. 93, 101 (1989) ("state common-law and

statutory remedies against monopolies and unfair business

practices" among the "historic police powers of the States").

Thus, the regulation of business conduct is a sufficiently im-

portant state interest to invoke Younger abstention. See,

e.g., Middlesex County Ethics Comm., 457 U.S. 457, 434

(1982) (regulating conduct of lawyers).

2. Protecting the Welfare of Minors - As alleged in

Connnecticut's state court action, because of the tobacco

companies’ aggressive advertising directed at children, more

than 30% of all Connecticut high school students smoke and

OEE RM ARLE TLS NS sed! SND LE AB ANNE BI

LAAN ami

about 90% of all smokers began smoking before reaching

the age of majority. Protecting the welfare of Connecticut's

infants and minors clearly implicates an area of undisputed

State governmental parens patriae responsibility. Jn re

Valerie D., 223 Conn. 492, 613 A.2d 748 (1992); see

Moore v. Sims, 442 U.S. 415, 423 (1979). The State's civil

enforcement action seeks to prevent the tobacco companies

from continuing to market aggressively to minors, plainly

implicating Connecticut's interest in securing compliance

with its criminal laws. See Conn. Gen. Stat. § 53-344 (pro-

hibiting sales or delivery of tobacco products to minors);

Mangini v. R:J. Reynolds Tobacco Co., 7 Cal. 4th 1057,

875 P.2d 73, cert. denied, 115 S.Ct. 577 (1994).

3. Protecting the Fiscal Integrity of the State and Its

Programs - The Supreme Court has held that a "civil

enforcement action. . . brought by the State in its sovereign

capacity" to "vindicate . . . the fiscal integrity" of "its public

assistance programs" is an interest vital enough to require

Younger abstention. Trainor v. Hernandez, 431 U.S. 434,

444 (1977); accord Moore v. Sims, 442 U.S. 415, 423

(1979). Connecticut's state court action plainly implicates

the fiscal integrity of its public assistance programs.”

Like Illinois did in Trainor, the State's Complaint alleges harm to

the fiscal integrity of it general assistance programs. Namely, the

State has been required to expend hundreds of millions of dollars

for tobacco-related illnesses as a result of the tobacco defendants’

unfair, deceptive and anti-competitive business practices. The

Court of Appeals distinguished 7rainor on the ground that in

“safeguarding the fiscal integrity of [its public assistance]

programs" in that case, the State of Illinois sought to vindicate

some of the same interests it might have elected to pursue

criminally. Philip Morris, Inc. v. Blumenthal, 123 F.3d 103, 107

(2d Cir. 1997). The Court stated: "The instant case does not

involve a threat to the ‘fiscal integrity’ of Connecticut's Medicaid

program because no fraud has been committed against that

program." /d.

By ignoring these obvious and important State inter-

ests, and instead placing a different characterization on the

State's action, one that focused on "outcomes" rather than

the “importance of the generic proceedings," the Court of

Appeals has made innumerable State enforcement actions

liable to federal preemptive lawsuits such as this in the fu-

ture. See § II, supra.

Finally, the extreme importance of these interests is

particularly underscored by the proposed national settlement

now pending before the Congress. This settlement contains

many of the remedial initiatives that the State of Connecti-

cut's lawsuit demands by way of relief in its state court ac-

tion, including:

* Requiring tobacco manufacturers to disclose all

previously non-public internal laboratory research

and all new internal laboratory research generated

in the future relating to the health effects or safety

of their products;

- Establishing funds from tobacco industry payments

for education-oriented counter-advertising and to-

bacco control campaigns, health benefits programs

and smoking cessation programs;

A ban on all outdoor tobacco advertising and

elimination of cartoon characters and human

Trainor, of course, does not hold that to vindicate an important

state interest the state must be acting "in aid of and closely related

to criminal statutes." Accord Pennzoil Co. v. Texaco, Inc., 481

U.S. 1 (1987) (Younger appropriate although no criminally related

statutes at issue). Further, the State of Connecticut seeks not only

to recoup those increased expenditures (just as the State of Illinois

did in 7rainor), but to enjoin the defendants’, wrongful.conduct, in

part to reduce future wrongful increases occasioned by defendants'

conduct.

. b,

SSDS Ee EERE Se Oe Tre TE

PR PEL Beith Ae SR SS SM

figures such as Joe Camel and the Marlboro Man

in tobacco advertisements;

- Subjecting the tobacco industry to severe financial

surcharges if underage tobacco use does not de-

cline radically over the next decade in order to en-

sure best efforts to decrease underage tobacco

use.

These proposals, which obviously manifest a signifi-

cant national interest, clearly support a conclusion that the

state court action implicates several important state interests

for purposes of Younger. :

CONCLUSION

Younger v. Harris, 401 U.S. 37, 43-44 (1971). The

Court of Appeals below looked narrowly at one of the "out-

comes" the State seeks (money damages), rather than

broadly, or "generically," at the important interests the pro-

ceeding seeks to vindicate by seeking that outcome and oth-

ers. The Court mischaracterized the State's action by

labeling it a mere claim for money damages, and departed

from NOPSI by focusing only on that aspect of relief. In ig-

noring the public health interests implicated by this case na-

tionally and in Connecticut, the Court of Appeals failed to

Younger principles properly. This Court should therefore

grant this petition.

Respectfully submitted,

PETITIONER

*RICHARD BLUMENTHAL

ATTORNEY GENERAL

SU #D. DS,

*Eliot D. Prescott

Gregory T. D'Auria

Assistant Attorney General

55 Elm Street

P.O. Box 120

Hartford, CT 06141-0120

Tel. No. (860)-808-5020

*Counsel of Record

No.

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1997

RICHARD BLUMENTHAL,

ATTORNEY GENERAL OF CONNECTICUT

| Petitioners

V. )

PHILIP MORRIS, ET AL.

Respondents

4 APPENDIX TO

2 PETITION FOR WRIT OF CERTIORARI

APPENDIX TABLE OF CONTENTS

Philip Morris, Inc. v. Blumenthal, USCA, No.

97-7122, Order Denying Petition For

Rehear ing Containing A Suggestion For

BUMIOIE ME IY NOIR eS oe

Philip Morris, Inc. et al. v. Blumenthal,

Bf 88 ER Me LY 8 9° a TERR et aU oe Se a

Philip Morris, et al. v. Blumenthal, .

USDC, Civil No. 3:96CV1221(PCD)

Ruling On Motion To Dismiss ..................

tate of Connecticut v. Philip Morris. Inc.

et al., Connecticut Superior Court,

Judicial District of Stamford/Norwalk at

Stamford, Return Date August 13, 1996,

RSC SGent ach rt OU REALE elena 7

CORR ReOR PR @ ae bee eee oe akin alr

COON AION. DIRE BSS Sai ce a

Cen: KICK SIME SS 8A oN ae

Conn. Gen. Stat: § 42-110d ... 0.0.0 00.0000000055,

Conn: Gen: Stat.’ §:42-110g 0

Conn: Gen: Stat: 6:42-110k -3 ok es

Conn. Gen. Stat. §42-110m °....0.50.22.0200.5....

Conn. Gen. Stat. § 42-110n: | 06 2

a A ea ee aa i ae eee eae

— EE EE ee

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

UNITED STATES COURT HOUSE

40 FOLEY SQUARE

NEW YORK 10007

GEORGE LANGE II

CLERK

At a stated term of the United States Court of Ap-

peals for the Second Circuit, held at the United States

Courthouse, Foley Square, in the City of New York on the

24th day of November one thousand nine hundred and

ninety-seven.

UNITED STATES COURT OF APPEALS

FILED

NOV 24 1997

Philip Morris, Inc.

GEORGE LANGE @ CLERK

Plaintiff-Appellant

Dkt No: 97-7122

Blumenthal,

Defendant-Appellee.

A petition for rehearing containing a suggestion that the ac-

tion be reheard in banc having been filed herein by the ap-

pellee Blumenthal.

Upon consideration by the panel that decided the ap-

peal, it is Ordered that said petition for rehearing is

DENIED.

It is further noted that the suggestion for rehearing in banc

has been transmitted to the judges for the court in regular

active service and to any other judge that heard the appeal

and that no such judge has requested that a vote be taken

thereon.

FOR THE COURT

GEORGE LANGE III, CLERK

By: _s/ Beth J. Meador

Beth J. Meador,

Administrative Attorney

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

No. 1904 - August Term, 1996

(Argued: June 26, 1997 Decided: September 12, 1997)

Docket No. 97-7122

PHILIP MORRIS, INC.; RJ Reynolds Tobacco

Co.; Brown & Williamson Tobacco Corporation, USA;

Lorillard Tobacco Co.,

Plaintiffs-Appellants,

Seba Aa ip zeibd

Richard BLUMENTHAL, Attorney General,

Defendant-Appellee.

Saisie Sek a5 AS at AEs Ras NR ete Es

Before:

MINER, MCLAUGHLIN AND JACOBS.

Circuit Judges.

Appeal from a judgment entered in the United States

District Court for the District of Connecticut (Dorsey, C.J.)

on an order granting defendant's renewed motion to dismiss

plaintiffs' federal action pursuant to the Younger abstention

doctrine, the court having found that important state

interests were implicated in defendant's state action to en-

join the future sale of cigarettes and to recover damages re-

lated to the past and present sale of cigarettes.

Reversed and remanded.

PETER C. HEIN, Wachtell, Lipton, Rosen & Katz,

New York City (William R. Murphy, Ben A. Solnit, Tyler

Cooper & Alcorn, New Haven, CT, Donald B. Ayer, Jones,

Day, Reavis & Pogue, Washington, DC, Edward F. Hen-

nessey, III, David Thomas Ryan, Robinson & Cole, Hart-

ford, CT, David M. Bernick, P.C., Marjorie Press

Lindblom, Andrew R. McGaan, Kirkland & Ellis, Chicago,

IL, Francis H. Morrison, III, James H. Rotondo, Day, Berry

& Howard, Hartford, CT, Gene E. Voigts, John C. Monica,

Shook, Hardy & Bacon, LLP, James RaFogarty, Andrew P

Nemuroff, Lawrence F. Reilly, Epstein Fogarty Cohen &

Selby LLC, Greenwich, CT, of counsel), for

Plaintiffs-A ppellants.

RICHARD BLUMENTHAL, Attorney General,

Hartford, CT (David S. Golub, Jonathan M. Levine, Silver

Golub & Teitell, LLP, Stamford, CT, Gregory T. D'Auria,

Assistant Attorney General, Hartford, CT, of counsel), for

Defendant-A ppellee.

MINER, Circuit Judge

Plaintiffs-appellants Philip Morris, Inc., RJ Reynolds To-

bacco Co., Brown & Williamson Tobacco Corporation,

GAS

USA, and Lorillard Tobacco Co. (the “Tobacco Compa-

nies"), appeal from a judgment entered in the United States

District Court for the District of Connecticut (Dorsey, C.J.)

on an order granting the renewed motion of defendant-

appellee Richard Blumenthal, the Attorney General of the

State of Connecticut (the "Attorney General" or the

state"), to dismiss the Tobacco Companies’ federal action

pursuant to the Younger abstention doctrine. The district

court found that abstention was appropriate because, inter

alia, important state interests were implicated in the state's

lawsuit seeking injunctive relief and monetary damages for

violations of the Connecticut Unfair Trade Practices Act

("CUTPA"), Conn. Gen. Stat? Ann. § 42-110a ef seq.

(West 1992), the Connecticut Antitrust Act, Conn. Gen.

Stat. Ann. § 35-24 et seg. (West 1987 & Supp.1997), and

state common law.

For the reasons that follow, we reverse and remand.

BACKGROUND

The action giving rise to this appeal was initiated in re-

sponse to various well-publicized threats by the Attorney

General to commence an action in state court against com-

panies in the tobacco industry. According to the Attorney

General, that action would seek to recover millions of dol-

lars paid out by Connecticut under its Medicaid and general

medical assistance programs for tobacco-related illnesses.

In 1995, the Attorney General attempted to obtain legisla-

tive authorization for a lawsuit against tobacco companies.

The Connecticut General Assembly declined to enact legis-

lation authorizing such a suit. The Attorney General again

sought authorization in March of 1996, which again was de-

nied by the General Assembly. Notwithstanding the General

Assembly's denial of authorization, the Attorney General

made clear through the press that he intended to proceed

with the legal action.

On June 28, 1996, the Tobacco Companies commenced the

instant action to enjoin the state from filing the impending

suit in state court (the “federal action"). In their complaint,

the Tobacco Companies asserted that "[t]he Threatened

Lawsuit seeks to impose upon [the Tobacco Companies] on

a retroactive basis massive costs of the Medicaid program .

that Connecticut has voluntarily chosen to establish, irre-

spective of traditional principles of law governing the rights

and duties of [the Tobacco Companies] with respect to any

actual Medicaid recipient." (Compl. 16.) The Tobacco

_.-~ Companies challenged on constitutional grounds aspects of

eee the relief that the state intended to pursue.” In particular,

they challenged the recovery of Medicaid payments made by

Connecticut in connection with illnesses that allegedly are

tobacco-related, and they sought to resolve questions about

the consequences of their continuing to do business in Con-

necticut during the pendency of the threatened suit.

Three weeks after the initiation of the federal action, the

state filed suit in Connecticut Superior Court against the

Tobacco Companies and six other tobacco-related compa-

nies and organizations (the "state action"), seeking damages

The Tobacco Companies asserted in their complaint that the

State's lawsuit and _ interpretation of Connecticut law

unconstitutionally burden interstate commerce and violate the

Tobacco Companies’ rights under the Due Process Clause, Equal

Protection Clause, Takings Clause, Supremacy Clause, and First

Amendment. They sought a declaration that provisions of

Connecticut law, as construed by the state, are unconstitutional.

A6é

and injunctive relief for alleged violations of the state anti-

trust law, CUTPA and state common law. The state al-

leged, inter alia, that the tobacco companies had engaged in

unfair, deceptive and anti-competitive trade practices to

promote the sale of their product, including (1) a campaign

to misrepresent and conceal the ill effects and addictive na-

ture of tobacco use, (2) the manipulation of nicotine levels,

(3) the failure to develop a less harmful product and (4) the

purposeful marketing to children.

The state sought a number of remedies, including a perma-

nent injunction enjoining the companies from continuing

their alleged unfair practices, monetary relief under a vari-

ety of theories, including recovery of Connecticut's past and

future expenditures for tobacco-related health-care costs

under Medicaid and a variety of other programs, and civil

penalties under CUTPA and the state antitrust laws. The

state also sought the disgorgement of all profits attained

through the companies’ unfair or deceptive trade practices.

The Tobacco Companies removed the state action to fed-

eral court pursuant to 28 U.S.C. § 1441. The state argued

that removal was improper due to a lack of subject matter

jurisdiction. It then moved to dismiss the federal action on

the basis of Younger v. Harris, 401 U.S. 37, 91 S.Ct. 746,

27 L.Ed.2d 669 (1971), and to remand the state action to

the state court. The motion to dismiss the federal action

was denied without prejudice pending a determination in the

removed state action on the issue of subject matter jurisdic-

tion. On October 9, 1996, the state action was remanded to

state court for lack of subject matter jurisdiction. The state

then renewed its motion to dismiss the federal action.

The Tobacco Companies argued that Younger abstention

was inappropmiate in this case and that, if the district court

were inclined to abstain, it should do so under the Pullman

abstention doctrine, see Railroad Comm'n of Tex. v. Puli-

man Co., 312 U.S. 496, 501, 61 S.Ct. 643, 645, 85 L.Ed.

971 (1941). The district court found that Younger absten-

tion was proper and declined to address the applicability of

Pullman. Accordingly, on December 23, 1996, the district

court granted the state's renewed motion to dismiss. Judg-

ment was entered on December 27, 1996. This appeal

followed.

DISCUSSION

We have been counseled frequently by the Supreme Court

"that federal courts have a strict duty to exercise the juris-

diction that is conferred upon them by Congress." Quack-

enbush v. Allstate Ins. Co., --- U.S. ----, ----, 116 S.Ct.

1712, 1720, 135 L.Ed.2d 1 (1996). "Abdication of the obli-

gation to decide cases can be justified under [the doctrine of

abstention] only in the exceptional circumstances where the

order to the parties to repair to the state court would clearly

serve an important countervailing interest." Colorado River

Water Conservation Dist. v. United States, 424 U.S. 800,

813, 96 S.Ct. 1236, 1243, 47 L.Ed.2d 483 (1976) (quota-

tion omitted).

The state argues that the instant case provides such "ex-

ceptional circumstances," and urges abstention under the >

Younger doctrine. Under Younger, federal courts may "re-

frain from hearing cases that would interfere with a pending

state criminal proceeding or with certain types of state civil

proceedings," Quackenbush, --- U.S. at ----, 116 S.Ct. at

1721 (citation omitted), such as civil enforcement proceed-

ings, see Huffman v. Pursue, Lid., 420 U.S. 592, 604, 95

ee eT eee ee Dene ee we

a a

S.Ct. 1200, 1208, 43 L.Ed.2d 482 (1975), and proceedings

related to the integrity or administration of the state judicial

system, see, €.g., Juidice v. Vail, 430 U.S. 327, 334-35, 97

S.Ct. 1211, 1216-17, 51 L.Ed.2d 376 (1977) (civil con-

tempt). We have found Younger abstention appropriate

where "1) there is an ongoing state proceeding, 2) an im-

portant state interest is implicated, and 3) the plaintiff has

an avenue open for review of constitutional claims in the

state court." Hansel v. Town Court, 56 F.3d 391, 393 (2d

Cir.), cert. denied, --- U.S. ----, 116 S.Ct. 572, 133 L.Ed.2d

496 (1995).

There is little question that there is an ongoing state pro-

ceeding and that the Tobacco Companies could obtain

meaningful review of their federal claims in the state action.

However, we do not find that the federal action implicates

an important state interest within the meaning of Younger.

In determining whether the "important state interest" re-

quirement has been met, we consider whether the state ac-

tion concerns the central sovereign functions of state

government such that "exercise of the federal judicial power

would disregard the comity between the States and the Na-

tional Government." Pennzoil Co. v. Texaco, Inc., 481 U.S.

1, 11, 107 S.Ct. 1519, 1525, 95 L.Ed.2d 1 (1987). "[Wle

do not look narrowly to [the State's] interest in the outcome

of the particular case," but rather look to "the importance of

the generic proceedings to the State." New Orleans Pub.

Serv., Inc. v. Council of New Orleans, 491 U.S. 350, 365,

109 S.Ct. 2506, 2516, 105 L.Ed.2d 298 (1989), The bur-

den is on the state to establish that an important state inter-

est is implicated. See 7rainor v. Hernandez, 431 U.S. 434,

448. 97 S.Ct. 1911, 1920, 52 L.Ed.2d 486 (1977) (Black-

mun, J., concurring).

In order to ascertain the "generic proceeding" involved in

the action brought by the state, we cannot focus solely or

chiefly upon the style of the state's pleading, such as the

particular causes of action pleaded or statutes invoked. We

must consider the underlying nature of the state proceeding

on which the federal lawsuit would impinge. For example,

in Pennzoil, the Supreme Court analogized the bond-

posting requirement. sought to be enjoined in that case to

the state contempt process at issue in Juidice, 430 U.S. 327,

97 § Ct. 1211, 51 L.Ed.2d 376, and described both of those

challenged state proceedings as "processes by which the

State compels compliance with the judgments of its courts."

481 U.S. at 13-14, 107 S.Ct. at 1527-28.

In the instant case, the Tobacco Companies seek a federal

court injunction prohibiting the state from collecting from

them monies expended by the state for treatment of

smoking-related illnesses.” Although the state pleads its

action in state court as an enforcement action pursuant to

CUTPA and the state antitrust law to prevent deception and

unfair and anticompetitive business practices--arguably im-

portant state interests--the underlying claim is more accu-

rately classified as a subrogation action grounded in tort.

See Philip Morris Inc. v. Harshbarger, 946 F.Supp. 1067,

1077 (D.Mass.1996). Notwithstanding certain other claims,

The state disputes that the Tobacco Companies’ suit is limited to

enjoining the recovery of money expended on Medicaid and other

health care costs, because the complaint asks the federal court to

enjoin the state "from prosecuting, imposing or enforcing liability

pursuant to the Threatened Lawsuit." (Compl.{ E.) However, read

in context, it seems clear that the Tobacco Companies are urging

the district court to enjoin on constitutional grounds an action for

monetary relief. ‘

Alo

lait

WOR SASS CP ON EEE ST Se TED SA A te Moe

the primafy aim of the state is to obtain reimbursement from

the tobacco industry for expenditures caused by its allegedly

tortious conduct. This purpose has little to do with eradi-

cating unfair trade practices or anticompetitive business

practices. See, e.g., Witham v. ITT Hartford, No. CV

960132891, 1997 WL 325443, at *1 (Conn.Super.Ct. June

4, 1997) (purpose of CUTPA is to protect consumers from

unfair trade practices). A subrogation claim grounded in

tort is not a generic proceeding of great importance to the

state.

Moreover, as essentially a suit for money damages, it is

evident that the state action cannot be characterized accu-

rately as a “sovereign enforcement proceeding." The

monetary relief sought by the state also would be available

to a private citizen.” Connecticut General Statutes §

42-110g provides that any private party may seek to recover

actual damages suffered as a result of alleged CUTPA viola-

tions (as the state seeks to do in the instant action) and, in

its discretion, the court may also award the private party pu-

nitive damages and equitable relief. Similarly, while the

state is empowered under Connecticut General Statutes §

35-32 to bring actions in the name of the state or as parens

patriae for violations of the state antitrust laws, and is enti-

tled to recover treble damages, Connecticut General Stat-

utes § 35-35 also entitles private parties to recover treble

damages on their own behalf for antitrust violations. Thus,

on its face, the state action does not appear to differ greatly

“The state also seeks in the state action to recover civil penalties

under CUTPA, see Conn. Gen. Stat. Ann. § 42-1100(b) (West

Supp.1997), and the state antitrust law, see Conn. Gem Stat.

Ann. § 35-38 (West 1987). However, these claims do not affect

the nature of the state action, which primarily is to seck

reimbursement of health care expenditures.

All

from a private action under CUTPA, and the mere fact that

the state is involved as a party does not transform the action

into a “sovereign enforcement" proceeding. See Cate v.

Oldham, 707 F.2d 1176, 1183 (11th Cir.1983); see also

Moore v. Sims, 442 U.S. 415, 423 n. 8, 99 §.Ct. 2371, 2377

n. 8, 60 L.Ed.2d 994 (1979) (that the state is a party to an

action does not itself make Younger abstention appropriate).

Younger The state argues that 7rainor mandates absten-

tion when a state seeks to recover money for one of its pub-

lic assistance programs. See 431 U.S. at 444, 97 S.Ct. at

1917. However, the state action in 7rainor differs signifi-

cantly from the instant case. In 7rainor, the appellees

fraudulently concealed assets when applying for welfare

benefits. The state instituted a civil action to recoup the

benefit payments made to appellees. The Court found that

Younger abstention was appropriate in that case because the

state's suit was brought "to vindicate important state poli-

cies such as safeguarding the fiscal integrity of [its public as-

sistance] programs." /d. Moreover, the underlying civil

claim in 7rainor sought to vindicate some of the same inter-

ests that the state might have elected to pursue in a criminal

prosecution. See id. (plurality), 431 U.S. at 449, 97 S.Ct.

at 1920(Blackmun, J., concurring); Harshbarger, 946

F.Supp. at 1077.

The instant case does not involve a threat to the "fiscal in-

tegrity" of Connecticut's Medicaid program because no

fraud has been committed against that program. There is no

suggestion that any individual who received Medicaid bene-

fits in relation to a tobacco-related illness was not entitled to

those benefits. The mere fact that conduct results in ex-

pense to a state program is not enough to bring an action to

terminate that conduct within the scope of 7rainor. Nor

Al2

can every initiative by a state to improve fiscal soundness by

getting money be deemed a safeguard of "fiscal integrity."

This action, like a subrogation action, primarily concerns the

apportionment of loss based upon theories of tort liability--

who should be responsible for paying for the injuries suf-

fered by those who contracted tobacco-related illnesses. It

bears little relation to the state's administration of its Medi-

caid or general assistance program and does not implicate

the programs’ "fiscal integrity." Therefore, Trainor does

not compel us to abstain under the Younger doctrine.

CONCLUSION

For the foregoing reasons, the decision of the district court

is reversed and remanded. Upon remand, the district court,

in its discretion, may consider whether abstention is appro-

priate under the Pullman doctrine.

Al3

UNITED STATES DISTRICT COURT

“= DISTRICT OF CONNECTICUT

PHILIP MORRIS INC.

R.R. REYNOLDS TOBACCO CO., ;

BROWN & WILLIAMSON TOBACCO CO.,_ :

LORILLARD TOBACCO CO.

Plaintiffs, : Civil No.

: 3:96CV1221 (PCD)

-VS-

RICHARD BLUMENTHAL,

ATTORNEY GENERAL OF CONNECTICUT, :

Defendant.

RULING ON MOTION TO DISMISS

Defendant moves to dismiss under the Younger v. Har-

ris abstention doctrine and pursuant to the Anti-Injunction

Act, 28 U.S.C. § 2283. For the reasons below, defendant's

motion is granted.

I. BACKGROUND

Plaintiffs ("Tobacco Companies") filed suit in district

court (the "present action") to enjoin defendant (the "Attor-

ney General") from filing an impending suit in state court.

Shortly after the present action was filed, the Attorney Gen-

eral in fact filed suit in Connecticut Superior Court. The

state court action seeks damages and injunctive relief for

Al4

SE ee ee ea eRe

alleged violations of state antitrust law, state unfair trade

practice law, and state common law. The Tobacco Compa-

nies removed the state court action to district court. The

removed case came before the Honorable Janet Bond Arter-

ton. The Attorney General moved to dismiss the present

action and to remand the removed case to state court where

originally filed, arguing that removal was improper due to a

lack of subject matter jurisdiction.

The motion to dismiss the present action was denied with-

out prejudice pending resolution of the subject matter juris-

diction issue in the removed case. On October 9, 1996, the

removed case was remanded to state court for lack of sub-

ject matter jurisdiction. The Attorney General then renewed

the motion to dismiss the present action.

fl. ANALYSIS

A. Abstention Under Younger v. Harris

The Tobacco Companies' action raises the issue of federal

court interference with pending state litigation. The Su-

preme Court has noted that "[s]ince the beginning of this

country's history Congress has, subject to few exceptions,

manifested a desire to permit state courts to try state cases

free from interference by federal courts." Younger v. Har-

ris, 401 U.S. 37, 43, 91 S.Ct. 746, 750, 27 L.Ed.2d 669

(1971). Federalism requires comity, which Justice Black

defined as.

a recognition of the fact that the entire country is made up

of a Union of separate state governments, and a continuance

of the belief that the National Government will fare best if

the States and their institutions are left free to perform their

separate functions in their separate ways. This, perhaps for

Al5

lack of a better and clearer way to describe it, is referred to

by many as "Our Federalism" .

Id. at 44, 91 S.Ct. at 750. Therefore, "the normal thing to

do when federal courts are asked to enjoin pending pro-

ceedings in state courts is not to issue such injunctions." /d.

at 45, 91 S.Ct. at 751. Although Younger addressed fed-

eral actions to enjoin state criminal proceedings, the same

principals of comity mandate extreme caution before enjoin-

ing certain kinds of state civil proceedings as well. See,

e.g., Huffman v. Pursue, Ltd., 420 U.S. 592, 604, 95 S.Ct.

1200, 1208, 43 L.Ed.2d 482 (1975); Middlesex County

Ethics Comm. v. Garden State Bar Ass'n, 457 U.S. 423,

432, 102 S.Ct. 2515, 2521, 73 L-Ed.2d 116 (1982).

Abstention under Younger is appropriate when: "1) there

is an Ongoing state proceeding; 2) an important state inter-

est is implicated; and 3) the plaintiff has an avenue open for

review of constitutional claims in the state court." Hansel v.

Town Court for Town Of Springfield, 56 F.3d 391, 393 (2d

Cir.1995). When these conditions are met, abstention is

obligatory. See Colorado River Water Cons. Dist. v. U.S.,

424 U.S. 800, 816 n. 22, 96 S. Ct 1236, 1245 n. 22, 47

L.Ed.2d 483 (1976).

1. Ongoing State Proceeding

There clearly is an ongoing state proceeding in the present

case. The question is whether this element requires that the

state proceeding be brought before the federal action. The

typica! scenario, as in Younger, is that the state action came

first. However, the Supreme Court has held that Younger

also applies in cases where the federal action was filed

Al6

Sp bak aa he te

Fae RH Ee ee G2.

Paes a

hn caR anise sh ehe TR Rd SE

wih en ikea tee

preemptively. Hicks v. Miranda, 422 U.S. 332, 95 S.Ct.

2281, 45 L.Ed.2d 223 (1975).

The Tobacco Companies argue that Steffel_v. Thompson,

415 US. 452, 94 S.Ct. 1209, 39 L.Ed.2d 505 (1974), not

Hicks, controls. Under Steffel, federal courts need not ab-

stain under Younger if there is no pending state proceeding,

lest "the hapless plaintiff [find himself] between the Scylla of

intentionally flouting state law and the Charybdis of forgo-

ing what he believes to be constitutionally protected activity

in order to avoid becoming enmeshed in a criminal proceed-

ing." Steffel, 415 U.S. at 463, 94 S.Ct. at 1217... However,

Steffel applies when there is no pending state proceeding.

The Supreme Court in Hicks specifically distinguished that

scenario from one in which there is a pending state proceed-

ing which, in a race to the courthouse, happened to be filed

second:

Neither Steffel v. Thompson, 415 U.S. 452

[94 S.Ct. 1209, 39 L.Ed.2d 505] (1974), nor

any other case in this Court has held that for

Younger v. Harris to apply, the state criminal

proceedings must be pending on the day the

federal case is filed. Indeed, the issue has

been left open; and we now hold that where

state criminal proceedings are begun against

the federal plaintiffs after the federal com-

plaint is filed but before any proceedings of

substance on the merits have taken place in

the federal court, the principles of Younger

v. Harris should apply in full force.

Hicks. 422 U.S. at 349, 95 S.Ct. at 2292 (footnote

omitted).

Al7

-——— The Tobacco Companies attempt to distinguish Hicks on

several other grounds. First they argue that Hicks applies

only to criminal, not civil, proceedings. This argument is

without merit. As discussed above, Younger applies to cer-

tain types of civil actions. Hicks applies to civil proceedings

to the same extent that Younger does.

Second, the Tobacco Companies distinguish Hicks on the

grounds that the state proceedings brought in that case

could only have been brought in state court, not in federal

court. However, the only reason why the claims in Hicks

could have been brought uniquely in state court is that they

were criminal charges. The distinction therefore is irrele-

vant.and merely rehashes the argument that Hicks only ap-

plies to state criminal proceedings. Furthermore, the cases

cited do not support this argument.

Finally, the Tobacco Companies argue that "comity works

both ways": Respect for federalism would have the state.

not the federal, court abstain. However the only case cited,

Chaulk Services v. Massachusetts Commission Against Dis-

crimination, 70 F.3d 1361 (1st Cir.1995), must be distin-

guished. In Chaulk the state administrative action interfered

with a federal statutory and administrative system constitu-

tionally adopted by congress. There is no such federal ad-

ministrative preemption in the present action.

Accordingly, there as an "ongoing proceeding" for

Younger purposes.

Als

2. Important State Interest

Abstention is proper under Younger in civil cases

only if the proceedings implicate “important state interests."

te A n B

Assn, 457 U.S. 423, 432, 102 S.Ct. 2515, 2521, 73

L.Ed.2d 116 (1982). Civil actions by the state which are

“akin to a criminal prosecution" have been held important

state interests. Huffman, 420 U.S. at 604, 95 S.Ct. at 1208

(civil enforcement of anti-obscenity laws). State enforce-

ment of attorney disciplinary rules are another example.

Middlesex, 457 U.S. 423, 102 S.Ct. 2515. Phrased more

generally, important state interests include "[p]roceedings

necessary for the vindication of important state policies or

for the functioning of the state judicial system." Id. at 432,

102 S.Ct. at 2521.

The Attorney General's claims under the Connecti-

cut Unfair Trade Practices Act ("CUTPA") and under Con-

necticut antitrust law are important state interests. Both

claims are under statutory schemes which contemplate civil

enforcement actions by state authorities to effect state pol-

icy. See C.G:S. § 42-110m(a) (Commissioner of Consumer

Protection can ask Attorney General to sue in name of the

state under CUTPA); C.GS. § 35-32(a) ("The attorney

general, in the name of the state and on behalf of the people

of the state, shall enforce [the Connecticut Antitrust Act]").

These laws are mechanisms for the state to enforce its im-

portant interest in fair trade in Connecticut.

The Tobacco Companies urge following Philip Mor-

ris v. Harshbarger, 1996 WL 676807, 946 F.Supp. 1067

(D.Mass.1996). In Harshbarger Tobacco Companies also

preemptively filed suit to enjoy a state court action by the

Massachusetts Attorney General. The Massachusetts Dis-

trict Court declined to abstain under Younger because it did

Al9

not find an important state interest. The Massachusetts At-

torney General's action; which sought reimbursement for

Medicaid expenditures, was found to be "classically in the

nature of subrogation," and accordingly not an important

state interest. However, Harshbarger must be distinguished

because the Massachusetts Attorney General's suit in state

court did not allege violations of state unfair trade practice

and antitrust law, as does the Connecticut state court ac-

tion. It is therefore unnecessary to address the merits and

applicability of Harshbarger, since the Attorney General's

CUTPA and antitrust claims do implicate an important state

interest.

The Tobacco Companies attempt to gloss over the

absence of unfair trade practice and antitrust claims in the

Massachusetts case by pointing out that the underlying state

complaints in the two cases are "predicated on virtually

identical factual allegations." Surreply Mem. at 2. This is

irrelevant. The Attorney General has alleged an important

state interest by invoking CUTPA and Connecticut antitrust

laws, not merely by the nature of the factual allegations.

The Tobacco Companies argue that Harshbarger

controls because the Massachusetts attorney general sought

non-monetary relief similar to the present action, although

without alleging unfair trade practice or antitrust claims.

This argument misses the point. The existence of an impor-

tant state interest for Younger purposes does not depend on

whether the relief sought is monetary or injunctive. Rather,

it depends on the nature of the claim brought in the underly-

ing state court action. It is therefore irrelevant that similar

relief was sought under different laws, since it is the claim,

not the relief, which determines the existence of an impor-

tant state interest. As discussed above, the Connecticut

state court action's allegations constitute an important state

interest. i

A20

Bia ts aR Nl EC PRT gE ee eT n

EE ee ee Pee hy ee ee eg

The fact that the Tobacco Companies’ complaint in

the present action only seeks to enjoin state court imposi-

tion of monetary, as opposed to injunctive, relief is also ir-

relevant for abstention purposes. The important state

interest element of Younger does not depend on the relief

sought by the federal plaintiff. Nor does it turn on whether

the state court action seeks monetary or injunctive relief.

Accordingly, the important state interest element of

Younger is satisfied.

3. Avenue Of Review For Constitutional Claims In State

Court |

The Supreme Court has held that “when a litigant

has not attempted to present his federal claims in related

state-court proceedings, a federal court should assume that

state procedures will afford an adequate remedy, in the ab-

sence of unambiguous authority to the contrary." ennzoil

v. Texaco, 481 US. 1, 15, 107 S.Ct. 1519, 1528, 95

L.Ed.2d 1 (1987). The Tobacco Companies do not chal-

lenge this element of Younger. P!I.'s Mem. in Opp. at 10.

Since there are no doubts regarding the adequacy of the To-

baceo Companies’ avenue of review for constitutional claims

in Connecticut state court, this element of Younger is

satisfied.

B. Other Arguments Raised By The Tobacco Companies

The Tobacco Companies mischaracterize the rela-

tionship between the Younger abstention doctrine and Ex

Parte Young, 209 U.S. 123, 28 S.Ct. 441, 52 L.Ed. 714

(1908), which "established the doctrine that when absolutely

necessary for protection of constitutional rights courts of

the United States have power to enjoin state officers from

instituting criminal actions." Fenner_v. Boykin, 271 US.

A2|

240, 243, 46 S.Ct. 492, 493, 70 L.Ed. 927 (1926). Ex

Parte Young held that there is the requisite subject matter

jurisdiction for such suits. Younger abstention is based on

federalism, not on lack of subject matter jurisdiction. Thus

when an action is brought pursuant to Ex Parte Young, but

falls within the requirements of Younger and its progeny,

abstention is appropriate. See Younger, 401 U.S. at 45, 91

S.Ct. at 751.

The Tobacco Companies make a puzzling argument

that claims in the federal action which seek injunctions

against imposition of liability for future, as opposed to past,

sales of tobacco should not be barred under Younger. This

argument is based on mis-cited cases and faulty logic.

Wooley v. Maynard, 430 U.S. 705, 97 S.Ct. 1428, 51

L.Ed.2d 752 (1977), does not stand for the proposition that

ongoing state proceedings can somehow be severed for

Younger purposes into past and future liability. In Wooley,

there were no ongoing state proceedings at issue--only fail-

ure to seek state appellate review of prior convictions under

the same law (covering up New Hampshire's "Live Free or

Die" motto on a car license plate). Wooley is thus

irrelevant.

There is furthermore no logical base to this argu-

ment. Nothing indicates that the state court would take the

unprecedented step of imposing liability for sales which

have not yet occurred. The outcome of the state litigation,

whatever that may be, will affect future liabilities under the

familiar doctrine of res judicata. Injunctions are always

prospective. But these truisms have no bearing on Younger

abstention.

The Tobacco Companies also argue that abstention

analysis in this case should be governed by Pullman, not

Younger, abstention. See R.R. Comm'n of Texas v. Pull- ©

man, 312 U.S. 496, 61 S.Ct. 643, 85 L.Ed. 971 (1941).

A22

However, these doctrines are not mutually exclusive. Since

abstention is appropriate under Younger, as discussed

above, Pullman analysis is thus unnecessary.

Ill. CONCLUSION

Defendant's renewed motion to dismiss (doc 44),

dated October 10, 1996, is granted.

SO ORDERED.

Dated at New Haven, Connecticut, December 23,

1996.

s/ Peter C. Dorsey

Peter C. Dorsey

Chief United States District Judge

RETURN DATE: AUGUST 13, 1996 : SUPERIOR COURT

STATE OF CONNECTICUT : JUDICIAL DISTRICT OF

: STAMFORD/NORWALK ~

Vv.

PHILIP MORRIS, INC.; R.J. REYNOLDS

TOBACCO COMPANY; BROWN &

WILLIAMSON TOBACCO CORPORATION:

B.A.T. INDUSTRIES P.L.C.; LORILLARD

TOBACCO COMPANY; LIGGETT GROUP,

INC., UNITED STATES TOBACCO : AT STAMFORD

COMPANY; HILL AND KNOWLTON, INC.;

THE COUNCIL FOR TOBACCO RESEARCH -

U.S.A. INC.; and THE TOBACCO

INSTITUTE, INC. : JULY 18, 1996

COMPLAINT

The State of Connecticut, by its Attorney General

Richard Blumenthal, brings this/action to obtain monetary,

injunctive and other equitable relief, and complains and al-

leges as follows: |

I. NATURE OF THE ACTION

1. For years, and continuing to date, the major

manufacturers of tobacco products and their agents have

engaged in a conspiracy to mislead, deceive and confuse the .

State of Connecticut and its residents regarding the evi-

dence that the use of tobacco products causes debilitating

and fatal disease and that the nicotine in tobacco products is

a powerfully addictive-substance. Although these manufac-

turers promised the Connecticut public that they would lead

the effort to discover and disclose the truth about tobacco

products and health, they have, in fact, systematically sup-

pressed and concealed material information and waged an

aggressive campaign of disinformation about the health

A24

PP Me ee tes Som

Lire ynics etoage

abi ee RB

pg Re eae a RRR SE

ba IT FFIEC: th Peo GRA

“4

consequences caused by their products. The tobacco com-

panies have taken these actions, even though they have

known for years, based on their own secret research, that

their products often injure or kill the consumer when used

exactly as intended.

2. The major manufacturers of tobacco products

and the other defendants have known for decades, on the

basis of their own long-concealed research, that nicotine is

addictive. At the same time, at least certain tobacco compa-

nies have developed sophisticated techniques to manipulate

the amount of nicotine delivered by their tobacco products

to the users so as to create and sustain addiction. Yet pub-

licly they have denied, and continue to deny, that nicotine is

addictive and that they manipulate the nicotine delivery of

tobacco products.

3. The tobacco companies and the other defendants

are engaged in this course of conduct despite their knowl-

edge that the vast majority of new users of tobacco prod-

ucts are children and adolescents. Each year, these

companies spend millions of dollars on marketing and public

relations in Connecticut to attract children and adolescents,

with the effect th.. ach year, more Connecticut children

and adolescents begin using and continue to use tobacco

products. The Centers for Disease Control and Prevention

("CDC") has reported that almost 90% of all smokers start

before the age of eighteen. Every day more than 3,000

American teenagers begin smoking Surveys show that in

Connecticut, 28.5% of high school males and 35% of high

school females smoke, and as many as 15.5% of male high

school students use smokeless tobacco. The CDC has de-

termined that, nationwide, 11.9% of all males between the

ages of 12 and 17 use smokeless tobacco products. The to-

bacco companies direct their products at children and

adolescents, who cannot legally purchase them, as a central

part of the manufacturers’ business strategy.

4. Thousands of Connecticut residents die each

year from using the defendants’ tobacco products. The

State of Connecticut is required to spend millions of dollars

annually to purchase or provide medical and related services

for Connecticut residents suffering from tobacco-related

diseases. At the same time the manufacturers of tobacco

products reap huge profits from the sale of tobacco prod-

ucts in Connecticut.

5. The State of Connecticut has a long-standing

policy of preventing minors from using tobacco products

and of preventing anyone from facilitating minors’ access to

or desire for such products. It is a crime in Connecticut to

"sell, give or deliver to any minor under 18 years of age to-

bacco in any form."

6. The State of Connecticut has a nearly 350 year-

old public policy to pay from the public fisc the health care

costs of its needy residents, a public policy that has long

predated defendants' marketing and sale of tobacco prod-

ucts in Connecticut. Since 1650, the year of the earliest re-

corded code of Connecticut, the coionial and state

legislative bodies have undertaken to pay these health care

costs. In the past ten years alone, the State of Connecticut

has spent over $13 billion in health care costs for its needy

residents. Since the earliest days of this state policy, the

State of Connecticut also has had a policy of recovering

those costs from those who should have paid such costs.

Il. THE PARTIES

A. THE PLAINTIFF

7. The State of Connecticut, by its Attorney Gen-

eral Richard Blumenthal, brings this action on its own

A26

behalf, on behalf of its Commissioners and agencies, includ-

ing the Commissioner of the Department of Social Services,

and as parens patriae, on behalf of residents of the State of

Connecticut. This action is brought pursuant to the author-

ity granted, inter alia, by Connecticut common law, Conn.

Gen. Stat. §§ 3-125, 42-110m, 35-32 and 33-301. Claims

herein pursuant to the Connecticut Unfair Trade Practices

Act are brought at the request of the Commissioner of Con-

sumer Protection of the State of Connecticut.

8. The State of Connecticut brings this action to ob-

tain monetary, injunctive and other equitable relief. The

State of Connecticut seeks to. prevent continued violations

of law and duties by the defendants, to cause disgorgement

of defendants’ tobacco-related profits and gains and to re-

cover actual and punitive damages on its own behalf and on

behalf of its residents, including, inter alia, the damages to

its general economy caused by the use of tobacco products.

These damages include, inter alia, past and future expendi-

tures for medical assistance provided under Connecticut's

Medicaid program pursuant to Conn. Gen. Stat. § 17b-260

et seq.; medical assistance provided under the General As-

sistance Medical Assistance Program pursuant to Conn.

Gen. Stat. § 17b-220 et seq.; the costs, both medical and

non-medical, of caring for persons with tobacco-related ill-

nesses who receive services through hospitals, health care

facilities, residential facilities and other similar facilities

owned, operated or maintained by the State of Connecticut

or facilities under contract to the State to render similar

services; and health care benefits for State of Connecticut

employees and retirees, including sick leave and the provi-

sion of health insurance.

A27

B. THE DEFENDANTS

9. Philip Morris Incorporated ("Philip Morris") is

a Virginia corporation with its principal place of business at

120 Park Avenue, New York, New York 10017. Among

other things, Philip Morris manufactures and distributes, or

during times relevant herein manufactured and distributed,

tobacco products under the brand names of Marlboro, Vir-

ginia Slims, Merit, Benson & Hedges, Cambridge, Saratoga

and Parliament.

10. R.J. Reynolds Tobacco Company ("RJR") is a

New Jersey corporation with its principal place of business

at North Main Street, Winston-Salem, North Carolina

27102. Among other things, RJR manufactures and distrib-

utes, or during times relevant herein manufactured and dis-

tributed, tobacco products under the brand names of Camel,

Winston, Salem, Vantage, Doral and Now.

11. Brown & Williamson Tobacco Corporation

("Brown & Williamson") is a Delaware corporation with its

principal place of business at 1500 Brown & Williamson

Tower, Louisville, Kentucky 40202. The American To-

bacco Company ("ATC") was purchased by Brown & Wil-

liamson (or its parent or affiliate) and merged into Brown &

Williamson, and Brown & Williamson has succeeded to the

liabilities of ATC. Among other things, Brown & William-

son manufactures and distributes, or during times relevant

herein Brown & Williamson or ATC manufactured and dis-

tributed, tobacco products under the brand names of Kool,

Belair, Raleigh, Barclay, Viceroy, Lucky Strike, Pall Mall,

Tareyton, and Bull Durham.

12. B.A.T. Industries P.L.C. ("BAT") is a British

corporation with its principal place of business at Windsor

House, 50 Victoria St., London. Through a succession of

intermediary corporations and holding companies, BAT is

A28

the sole shareholder of Brown & Williamson. Through

Brown & Williamson, BAT has placed tobacco products

into the stream of commerce with the expectation that sub-

stantial sales of tobacco products would be made in the

United States and in Connecticut. BAT has also conducted,

or through its agents, subsidiaries, associated companies,

and/or co-conspirators, conducted significant research for

Brown & Williamson on the topics of smoking, disease and

addiction. Brown & Williamson also sent to England re-

_ search conducted in the United States on the topics of

smoking, disease and addiction in order to remove sensitive

and inculpatory documents from United States jurisdiction,

and such documents were and are subject to BAT's control.

BAT is a participant in the conspiracy described herein and

has caused harm in Connecticut.

13. Lorillard Tobacco Company ("Lorillard") is a

Delaware corporation with its principal place of business lo-

| cated at 1 Park Avenue, New York, New York 10016. Lor-

illard is a successor to P. Lorillard Company. Among other

things, Lorillard manufactures and distributes, or during

times relevant herein manufactured and distributed, tobacco

products under the brand names of Old Gold, Kent, New-

port and True.

14. Liggett Group, Inc. ("Liggett") is a Delaware

corporation with its principal place of business at 700 West

Main Street, Durham, North Carolina 27702. Among other

things, Liggett manufactures and distributes, or during times

relevant herein manufactured and distributed, tobacco prod-

ucts under the brand names of L&M, Chesterfield, Eve,

Lark and Dorado.

15. United States Tobacco Company ("US To-

bacco") is a Delaware corporation with its principal place of

business located at 100 West Putnam Avenue, Greenwich,

Connecticut 06830. Among other things, US Tobacco now

A29

manufactures and distributes smokeless tobacco products

under the brand names of Happy Days, Skoal and Copenha-

gen. US Tobacco is the principal manufacturer of smoke-

less tobacco products in the United States. During times

relevant herein, US Tobacco also manufactured and distrib-

uted cigarettes.

16. Hill and Knowlton, Inc. ("Hill and Knowlton")

is a New Jersey corporation with its principal place of busi-

ness located at 420 Washington Avenue, New York, New

York.

17. The Council for Tobacco Research - U.S.A,

Inc. ("CTR"), successor in interest to the Tobacco Industry

Research Committee ("TIRC"), is a non-profit corporation

organized under the laws of the State of New York with its

principal place of business at 900 3rd Avenue, New York,

New York 10022.

18. The Tobacco Institute, Inc. ("Tobacco Insti-

tute") is a corporation organized under the laws of the State

of New York with its principal place of business at 1875 I

Street N.W., Suite 800, Washington, D.C. 20006.

19. As used in this Complaint, the term "defendant"

includes all predecessor and successor entities to the named

defendants.

20. Philip Morris, RJR, Brown & Williamson (in-

cluding ATC), BAT, Lorillard, Liggett and US Tobacco are

referred to in this Complaint as the "tobacco companies."

21. As used in this Complaint, the term "tobacco

products" refers to cigarettes and non-smoking tobacco

such as chewing tobacco and snuff. Non-smoking tobacco

is sometimes referred to herein as "smokeless tobacco."

22. At all relevant times, the tobacco companies to-

gether controlled virtually 100% of the tobacco products

markets in Connecticut and in the United States.

A30

Print oe ne en a aa a

23. The claims against all defendants arise out of

contracts to be performed in whole or in part in the State of

Connecticut; business solicited in the State of Connecticut;

the production, manufacture and/or distribution of goods by

the defendants with the reasonable expectation that the

goods would be used or consumed in the State of Connecti-

cut; the production, manufacture and/or distribution of

goods by the defendants that were used or consumed in the

State of Connecticut; and tortious-conduct by the defen-

dants in or having an effect in the State of Connecticut.

Ill. NATURE OF DEFENDANTS' WRONGFUL

COND AND CONSP

A. IN GENERAL

24. This action arises out of an ongoing course of

wrongful conduct by each defendant individually gis in con-

spiracy with each other.

25. Defendants have pursued a course of conduct

and conspiracy of deceit and misrepresentation against the

public in order to promote and maintain sales of tobacco

products, and the profits derived therefrom, ‘ » shield them-

selves from having to pay the health care costs of to-

bacco-related diseases and to shift those costs to others,

such as the State of Connecticut.

26. The means by which the defendants have carried

out their conspiracy are twofold: first, they agreed to repre-

sent falsely to the public that they were creating a new, un-

biased and therefore trustworthy source to answer questions

about smoking and health, and second, they counted on the

public's acceptance of their representations of such trust-

worthiness to misrepresent, suppress, distort and confuse

the facts about the health dangers of tobacco products, in-

cluding nicotine addiction. The tobacco companies set their

plan in motion by Creating a joint industry research

A31

organization in 1954. Since that time, they have used the

credibility gained by false claims of disinterested industry-

funded research to misrepresent the material facts to the

public. Although knowing of the serious health dangers in-

herent in the use of their products and the addictive nature

of their products, the defendants have utilized the above

scheme to further their fallacious arguments that there is in-

sufficient “objective” research to determine if use of tobacco

products causes disease and death, and that tobacco prod-

ucts are not addictive.

27. The two interconnected strategies of misrepre-

senting their objectivity to gain credibility, and using that

credibility better to deceive the public about smoking and

health, have been repeated consistently for more than four

decades. Defendants have engaged in a continuous conspir-

acy to deceive the public regarding facts material to the de-

cision to purchase tobacco products.

28. Moreover, as internal industry research con-

firmed the dangers of using tobacco products and addiction,

the defendants’ deception rose to a new level: although

promising the public that they would make full disclosure of

the results of their research, defendants concealed their own

negative health and addiction research results from both the

public and public health officials. These research results

have still not been voluntarily released.

29. The defendants also have not disclosed to the

public that the tobacco companies manipulate and control

the content and delivery of nicotine in their products to cre-

ate and sustain consumers’ addiction to tobacco products.

30. The success of the industry's campaign of deceit

and misinformation depended, in large part, on the tobacco

companies acting in concert._ Without the agreement of

each tobacco company to suppress the truth about the

A32

health consequences and addictive nature of using tobacco

products, the deception that the joint industry research ef-

forts were objective would be revealed, and the substantive

claim that “not enough facts are known" to indict the use of

tobacco products would ring hollow. The tobacco compa-

nies agreed to come together and to stay together in order

to accomplish what would not have otherwise occurred --

the unified and consistent distortion of public information

about the use of tobacco products, health and addiction.

31. The defendants were aware that unless they

took the actions they agreed to take and subsequently took,

the volume of their sales of tobacco products would sub-

stantially decrease, and accordingly the profits the tobacco

companies would realize would substantially diminish. De-

fendants were also aware that if they were required to pay

the health care costs caused by the use of their products,

then the tobacco companies’ profits would have been sub-

stantially decreased.

32. The non-tobacco company defendants have

acted in concert with the ei ob companies by

implementing marketing and pub lations strategies, fa-

cilities and operations to carry out the purpose and effect of

the conspiracy and wrongful conduct alleged herein.

B. 1953 "BIG SCARE" AND THE JOINT INDUSTRY

RESPONSE

33. In December of 1953, Dr. Ernest L. Wynder of

the Sloan-Kettering Institute published the results of a study

in which he painted the shaved backs of mice with cigarette

smoke, providing biological evidence that cigarette smoke

caused cancer. The previous year, a British researcher, Dr.

Richard Doll, published a statistical analysis showing that

lung cancer was more common among people who smoked

and that the risk of lung cancer was directly proportional to

A33

the number of cigarettes smoked. The widespread reporting

of these studies caused what officials of the tobacco compa-

nies later called the "Big Scare."

34. The tobacco products industry responded

quickly to the mounting adverse publicity of a link between

use of tobacco products and cancer. The Chief Executive

Officers of the leading tobacco companies met on December

15, 1953, at the Plaza Hotel in New York City. Included at

that meeting were representatives of Philip Morris, RJR,

Brown & Williamson, ATC, Lorillard, Liggett and US To-

bacco. Also in attendance was the public relations firm of

Hill and Knowlton, which was to play a central role in for-

mulating and executing the industry response.

35. According to a Hill and Knowlton memoran-

dum summarizing the meeting, industry executives viewed

the problem as "extremely serious and worthy of drastic ac-

tion." The document continues, "officials stated that sales-

men in the industry are frantically alarmed and ‘that the

decline in tobacco stocks on the stock exchange market has

caused grave concern .... "

36. The participants in the meeting agreed that a

strong public relations response from the industry was nec-

essary. From the beginning, the emerging research linking

use of tobacco products and cancer was viewed by these de-

fendants as a public relations problem, not a public health

issue. According to the Hill and Knowlton memorandum

summarizing the meeting:

a. The Chief Executive Officers of all the

leading tobacco companies, except Liggett,

“agreed to go along with a public relations

program on the health issue."

A34

b. "They are also emphatic in saying that the

entire activity is a long-term, continuing pro-

gram, since they feel that the problem is one

of promoting cigarettes and protecting them

from these and other attacks that may be ex-

pected in the future."

c. "The current plans are for Hill and

Knowlton to serve as the operating agency

. of the companies, hiring all the staff and dis-

bursing all funds."

C. CREATION OF TOBACCO INDUSTRY RE

EARCH COMMITTEE

37. Nine days later, Hill and Knowlton presented a

detailed recommendation to the tobacco companies and oth-

ers. The recommendation recognized the importance of

gaining the public trust, and avoiding the appearance of

bias, if the "procigarette" strategy was to be successful. Ac-

cording to the memorandum:

"[T]he grave nature of a number of recently

highly publicized research reports on the ef-

fects of cigarette smoking . . . have [sic] con-

fronted the industry with a serious problem

of public relations.

"It is important that the industry do nothing

to appear in the light of being callous to con-

siderations of health or of belittling medical

research which goes against cigarettes...

"The situation is one of extreme delicacy.

There is much at stake and the industry

group, in moving into the field of public rela-

tions, needs to exercise great care not to add

el to the flames."

a ip

( i ne ;

38. As a result of the December 15, 1953 meeting

and the recommendations of Hill and Knowlton, Philip Mor-

ris, RJR, Brown & Williamson, ATC, Lorillard and US To-

bacco agreed to create the Tobacco Industry Research

Committee ("TIRC"). Liggett joined in 1964, the same year

the Surgeon General issued his first report linking cigarette

smoking to lung cancer. Also in 1964, TIRC changed its

name to the Council for Tobacco Research - USA, Inc.

("CTR"). :

39. A second entity, the Tobacco Institute, was

formed by tobacco companies in 1958 to assist in the indus-

try's lobbying and public relations needs. Hill and Knowl-

ton, however, continued to have substantial involvement in

both TIRC and the Tobacco Institute. Hill and Knowlton's

role in these organizations has been described by industry

participants as: "Straddling both and acting as a buffér for

each .... Hill and Knowlton decides whether questions from

outside individuals or organizations are to be directed to the

Tobacco Institute or the T.I.R.C. "

40. Hill and Knowlton coordinated the public rela-

tions activities of both TIRC and the Tobacco Institute. In

this role, Hill and Knowlton helped forge a multi-prong in-

dustry propaganda strategy to counter the growing evidence

that tobacco use causes adverse health consequences and

the- growing call for governmental regulation of tobacco

products. At a 1963 strategy meeting of TIRC, the To-

bacco Institute, Hill and Knowlton and representatives of

the tobacco companies, Hill and Knowlton's role in

responding to the anticipated Report of the Surgeon Gen-

eral was described:

"Because Phase I [of the Surgeon General's

Report] is expected to be scientific in nature,

T.L.R.C. expressed the belief that it will logi-

cally be the responsive agency, with Dr.

A36

Little or Mr. Hartnett as spokesman and with

Hill & Knowlton providing public relations

guidance. By the same token, the Tobacco

Institute believes that Phase II [dealing with

regulatory action] will probably be its pri-

mary concern, again with Hill & Knowlton's

counseling."

D.CONTROL OF TIRC BY TOBACCO COMPANIES

THR H L AND KNOWLTON

41. As had been proposed at the December 15,

1953 meeting, the tobacco companies, through their agent

Hill and Knowlton, operated and effectively controlled

TIRC.

' 42. TIRC's offices were located in the Empire State

Building, one floor below the Hill and Knowlton offices.

Internal documents confirm that Hill and Knowlton, and not

independent scientists, actually ran TIRC. A “highly confi-

dential" internal memo reported:

"Since the [TIRC] had no headquarters and

no staff, Hill and Knowlton, Inc. was asked

to provide a working staff and temporary of-

fice space. As a first organizational step,

public relations counsel assigned one of its

experienced executives, W.T. Hoyt, to serve

as account executive and handle as one of his

functions the duties of executive secretary

for the [TIRC]."

43. There has been substantial staff overlap between

Hill and Knowlton and TIRC (and later CTR). In 1954, 35

staff members of Hill and Knowlton worked full or part time

for TIRC. In that year, TIRC, a purported research firm,

paid $477,955 to Hill and Knowlton, the public relations

A37

arm of the tobacco companies. This amount constituted

over 50% of TIRC's entire operating budget.

E. THE TOBACCO COMPANIES' FALSE PROMISE

TO THE PUBLIC

44. On January 4, 1954, Philip Morris, RJR, Brown

~ & Williamson, ATC, Lorillard, US Tobacco and others an-

nounced the formation and purpose of TIRC, with a full

page newspaper advertisement entitled "A Frank Statement

to Cigarette Smokers." The statement appeared in 448

newspapers across the nation, reaching a circulation of

43,245,000 in 258 cities. The advertisement ran in the daily

newspapers in Connecticut, including newspapers in Hart-

ford, Waterbury, New Haven, Bridgeport and Stamford. As

set forth below, this advertisement included an unambiguous

pledge to the public, including the people of Connecticut

and those who advance and protect the public health, that

through TIRC these tobacco companies would conduct and

report objective and unbiased research regarding the use of

tobacco products and their effects on health.

45. The "Frank Statement to Cigarette Smokers"

stated in part:

a. "Recent reports on experiments with mice

have given wide publicity to a theory that

cigarette smoking is in some way linked with

lung cancer in human beings."

b. "Although conducted by doctors of pro-

fessional standing, these experiments are not

regarded as conclusive in the field of cancer

research."

c. "[T]here is no proof that cigarette smok-

ing is one of the causes [of lung cancer]."

d. "We accept an interest in people's health

as a basic responsibility, paramount to every

- other consideration in our business."

e. "We believe the products we ‘make are

not injurious to health."

f. "We always have and always will cooper-

ate closely with those whose task it is to

safeguard the public health."

g. "We are pledging aid and assistance to

the research effort into all phases of tobacco

use and health."

h. "For this purpose we are establishing a

joint industry group consisting initially of the

undersigned. This group will be known as

[the] TOBACCO INDUSTRY RESEARCH

COMMITTEE."

i. "In charge of the research activities of the

Committee will be a scientist of unimpeach-

able integrity and national repute. In addi-

tion there will be an Advisory Board of

scientists disinterested in the cigarette indus-

try. A group of distinguished men from

medicine, science, and education will be in-

vited to serve on this Board. These scientists

will advise the Committee on its research

activities. "

j. "This statement is being issued because we

believe the people are entitled to know

where we stand on this matter and what we

intend to do about it."

46. These representations were made by these de-

fendants for the purpose and with the effect that consumers

would consider the representations material to their

A39

decisions to purchase and use tobacco products. At that

time, and continuing to the present, these defendants knew

or should have known that their failure to fulfill the duty

they undertook, and other conduct as alleged herein, would

directly stabilize or increase the use of tobacco products.

They also knew that an increase in health care costs for to-

bacco products users, including health care costs that would

be incurred by the State of Connecticut, was the substan-

tially certain consequence of the past and continued use of

tobacco products.

47. By the spring of 1955, the self-defense propa-

ganda strategy recommended by Hill and Knowlton and im-

plemented by the industry through the "Frank Statement"

had made steady progress towards its desired results, in-

cluding‘securing the confidence of those to whom it was di-

rected. Hill and Knowlton reported to TIRC:

a. "[P]rogress has been made.... The first ‘big

scare’ continues on the wane."

b. "The research program of the [TIRC] has

won wide acceptance in the scientific world

as a sincere, valuable and scientific effort."

c. "Positive stories are on the ascendancy."

F. DEFENDANTS' KNOWLEDGE THAT TOBACCO

PRODUCTS USE IS HARMFUL

48. In the years following the 1954 "Frank State-

ment," and continuing to the present, the tobacco compa-

nies have repeatedly acted in breach of their assumed duty

to report objective facts on tobacco products use and

health. As evidence mounted through industry research and

truly independent studies that the use of tobacco products

causes cancer and other diseases, defendants continued pub-

licly to represent that. the link between tobacco use and hu-

man disease was not proven, despite the fact that even their

A40

own studies and information were to the contrary. Inter-

nally, defendants knew and acknowledged the veracity of

the scientific evidence demonstrating the health hazards of

using tobacco products and at the same time suppressed

such evidence where they could and attacked it when it did

appear.

49. Internal industry documents reveal, for example:

a. A 1956 memorandum from the Vice

President of Philip Morris' Research and De-

velopment Department to top executives at

the company regarding the advantages of

"ventilated cigarettes" stated that: "De-

creased carbon monoxide and nicotine are

relatea to decreased harm to the circulatory

system as a result of smoking .... Decreased

irritation is desirable ... as a partial elimina-

tion of a potential cancer hazard."

b. A 1958 memorandum sent to the Vice

President of Research at Philip Morris, who

later became a member of its Board of Direc-

tors, from a company researcher stated "the

evidence . . . is building up that heavy ciga-

rette smoking contributes to lung cancer ei-

ther alone or in association with physical and

physiological factors .. ."

c. A 1961 document presented to the Philip

Morris Research and Development Commit-

tee by the company's Vice President of Re-

search and Development included a section

entitled "Reduction of Carcinogens . in

Smoke." The document stated, in part:

i A4]

"To achieve this objective will require a ma-

jor research effort, because

- Carcinogens are found in practically every

class of compounds in smoke.

This fact prohibits complete solution of the

problem by eliminating one or two classes of

compounds. The best we can hope for is to

reduce a particularly bad class, i.e., the

polynuclear hydrocarbons, or phenols ....

- Flavor substances and carcinogenic sub-

stances come from the same classes, in many

instances." ?

d. A 1963 memorandum to Philip Morris’

President and CEO from the company's Vice

President of Research describes a number of

classes of compounds in cigarette smoke

which are "known carcinogens." The docu-

ment goes on to describe the link between

smoking and bronchitis and emphysema. "Ir-

ritation problems are now receiving greater

attention because of the general medical be-

lief that irritation leads to chronic bronchitis

and emphysema. These are serious diseases

involving millions of people. Emphysema is

often fatal either directly or through other

respiratory complications. A number of ex-

perts have predicted that the cigarette indus-

try ultimately may be in greater trouble in

this area than in the lung cancer field."

A42

Sok OE i ee See ae

FR IIR LG gy LAP LOE

e. Brown & Williamson and its parent com-

pany, BAT, researched the health effects of

nicotine and were aware early on, as re-

ported at a BAT Group Research Confer-

ence in November 1970, that "nicotine may

be implicated in the aetiology [cause] of car-

diovascular disease ...."

f. A 1961 "Confidential" memorandum from

the consulting research firm hired by Liggett

to do research for the company states:

"There are biologically active materials pre-

sent in

_ Cigarette tobacco. These are: a) cancer caus-

ing b) cancer promoting c) poisonous d)

stimulating, pleasurable, and flavorful."

g. A 1963 memorandum from the Liggett .

consulting research firm states:

"Basically, we accept the inference of a

causal relationship between the chemical

properties of ingested tobacco smoke and

the development of carcinoma, which is sug-

gested by the statistical association shown in

the studies of Doll and Hill, Horn, and Dorn

with some reservations and qualifications and

even estimate by how much the incidence of

cancer may possibly be reduced if the car-

cinogenic matter can be diminished, by an

appropriate filter, by a given percentage."

A43

50. These internal Liggett documents sharply con-

trast with the information Liggett provided to the Surgeon

General in 1963. Liggett withheld from the Surgeon General

the views of its researchers and consultants that the evi-

dence showed that the use of tobacco products causes hu-

man disease. Instead, the report Liggett presented to the

Surgeon General focused on alternative causes of disease,

such as air pollution, coffee, alcohol consumption, diet, lack

of exercise and genetics. Liggett criticized the known sta-

tistical association between smoking and mortality and vari-

ous diseases as “unreliably conducted" and "inadequately

analyzed." The Liggett report concluded that the associa-

tion between tobacco products and disease was inconclusive

and that diseases generally associated with tobacco products

were, in fact, due to other factors.

51. Philip Morris also concealed from the public its

actual views of the research conducted outside the influence

of the industry. In a 1971 memorandum, Dr. H. Wakeham,

then Vice President of Research and Development, stated in

referring to a recent study that found cigarette smoke inha-

lation caused lung cancer in beagles: "1970 might very

properly be called the year of the beagle. Early in the year,

the American Cancer Society announced that they had fi-

nally demonstrated the formation of lung cancer in beagles

by smoke inhalation in the now infamous Auerbach and

Hammond study." Although Dr. Wakeham criticized the

mice cancer studies, he conceded that "the beagle test was a

critical one . . . for the cigarette causation hypothesis."

52. Dr. Wakeham's memorandum demonstrates

Philip Morris’ approval of the industry's public dismissals of

these independent studies: "The strong opposition of the in-

dustry to the beagle test is indicative of a new, more aggres-

sive stance on the part of the industry in the smoking and

health controversy. We have gone over from what I have

A44

called the ‘vigorous denial’ approach, the take it on the chin

and keep quiet attitude, to the strongly voiced opposition

and criticism. I personally think this counter- propaganda is

a better stance than the former one."

53. Similarly, BAT's internal view of the validity of

mouse skin painting experiments differed markedly from the

view expressed in public statements. Minutes from a 1969

BAT research conference stated "[h]istorically, bioassay ex-

periments were undertaken by the industry with the object

of clarifying the role of smoke constituents in pulmonary

carcinogenesis. The most widely used of these methods

[was] mouse-skin painting .... In the foreseeable future, say

five years, mouse-skin painting would remain as the ultimate

court of appeal on carcinogenic effects."

54. Two years later a Brown & Williamson public

relations document stated that "[mJuch of the experimental

work involves mouse-painting or animal smoke inhalation

experiments .. . . [T]he results obtained on the skin of mice

should not be extrapolated to the lung tissue of the mouse,

or to any other animal species. Certainly such skin results

should not be extrapolated to the human lung."

G. DEFENDANTS' REPEATED DECLARATIONS OF

THE DUTY

55. The deceptions of the 1954 "Frank Statement to

Cigarette Smokers" were consistently renewed and repeated

by the industry. RJR Chairman Bowman Gray told Con-

gress in 1964: "I stated that we feel, and we are on public

record, that more research is needed and a great deal more

research is needed. We are doing what we can in our best

efforts to encourage and provide for this research." “If it is

proven that cigarettes are harmful, we want to do something

about it regardless of what somebody else tells us to do.

And we would do our level best. It's only human."

A45

56. Another advertisement co-sponsored by TIRC

and the Tobacco Institute, on behalf of the tobacco compa-

nies, called "A Statement about Tobacco and Health,”

stated:

“We recognize that we have a special re-

sponsibility to the public -- to help scientists

determine the facts about tobacco and health,

and about certain diseases that have been as-

sociated with tobacco use. We accepted this

responsibility in 1954 by establishing the

TIRC, which provides research grants to

independent scientists. We pledge continued

support of this program of research until the

facts are known. We shall continue all possi-

ble efforts to bring the facts to light."

57. Additional representations were made in 1970

when the tobacco companies, acting through the Tobacco

Institute, placed a number of advertisements similar to the

1954 "Frank Statement." One advertisement stated in part:

a. “After millions of dollars and over 20

years of research: The question about smok-

ing and health is still a question."

PR a een eee Pre eny M,: WEN eee ty oe tee POS aCUR Petr Rey ee V4 OY I em

b. “In the interest of absolute objectivity, the

tobacco industry has supported totally inde-

pendent research efforts with completely

non-restrictive funding."

Ne ey ee ae ee ge geo ale ee

c. "In 1954, the Industry established what is

now known as CTR, the Council for To-

bacco Research--USA, to provide financial

support for research by independent scien-

tists into all phases of tobacco use and

A46

health. Completely autonomous, CTR's re-

search activity is directed by a board of ten

scientists and physicians who retain their af-

filiations with their respective universities

and institutions. This board has full author-

ity and responsibility for policy, development

and direction of the research effort."

d. “The findings are not secret."

58. Another advertisement in 1970 stated that the

industry “believes the American public is entitled to com-

plete, authenticated information about cigarette smoking

and health .... The tobacco industry recognizes and accepts

a responsibility to promote the progress of independent sci-

entific research in the field of tobacco and health."

59. In 1972, Tobacco Institute President Horace

Kornegay testifying before Congress stated that "the ciga-

rette industry is as vitally concerned or more so than any

other group in determining whether cigarette smoking

causes human disease .... That is why the entire tobacco in-

dustry .. . since 1954 has committed a total of $40 million

for smoking and health research through grants to

independent scientists and institutions."

60. In March of 1983, Sheldon Sommers, M_D.,

scientific director of CTR, testified before Congress that:

“Cigarette smoking has not been scientifically established to

be a cause of chronic diseases, such as cancer, cardiovascu-

lar disease, or emphysema. Nor has it been shown to affect

pregnancy outcome adversely."

61. In 1984, RJR placed an editorial style adver-

tisement in The New York Times stating that "[s]tudies

which conclude that smoking causes disease have regularly

ignored significant evidence to the contrary.”

A47

62. In 1994, the chief executives of the tobacco

companies testified under oath before the Subcommittee on

Health and the Environment of the Committee on Energy

and Commerce, U.S. House of Representatives, chaired by

Congressman Waxman ("Waxman Subcommittee"). These

executives knowingly made material misrepresentations

and/or omissions to the Subcommittee about tobacco prod-

ucts, health and addiction, and in particular, stated that

nicotine is not addictive. These statements, as with the

other deceptive statements and misrepresentations cited in

this Complaint, were consistent with defendants’ practice of

providing disinformation to the public and were made with

the knowledge and intention that they would be widely dis-

seminated to the public, and communicated to Connecticut

consumers. These defendants' testimony to the Waxman

Subcommittee included the following:

a. Philip Morris President and CEO William

I. Campbell said, in response to what he de-

scribed as "a number of charges . . . leveled

against the tobacco industry generally, and

Philip Morris specifically, . . . our consumers

are being misled and when that happens

Philip Morris has and will continue to speak

out loudly and clearly. Our consumers de-

serve to know the truth ....". Campbell fur-

ther stated that:

i. “Philip Morris does not manipulate nor independ-

ently control the level of nicotine in our products."

ii. "Cigarette smoking is not addictive."

ii. "Philip Morris research does not establish that

smoking is addictive."

b. Andrew Tisch, then CEO of Lorillard, as-

serted that smoking does not cause cancer.

A48

"We have looked at the data and the data

that we have been able to see has all been

Statistical data that has not convinced me

that smoking causes death. "

c. RJR CEO James W. Johnston said that,

"smoking is no more ‘addictive’ than coffee,

tea or Twinkies."

d. US Tobacco's President Joseph Taddeo

stated:

i, “The assertion that smokeless tobacco

use can be addictive is without merit."

ii. "U.S. Tobacco does not in any way ma-

nipulate the nicotine level in its tobacco

products ...."

ili. "Oral tobacco has not been established as

a cause of oral cancer."

63. These continuing representations by defendants

to the public about sponsoring independent objective re-

search and bringing the truth to light were false and decep-

tive. The misrepresentations were made to gain the trust of

the public to further defendants’ scheme of distorting and

suppressing substantive information about smoking and

health in order to assure the continuing widespread sale and

use of tobacco products.

64. Defendants’ representations that their products

are not addictive were made despite a substantial body of

evidence, including evidence developed by the tobacco

companies themselves, indicating that nicotine is not only

A49

addictive, but is the reason why people smoke and that the

primary, if not sole, function of nicotine is to provide a.

pharmacological effect on the smoker that leads to addic-

tion. The tobacco companies continue to deny that nicotine

is addictive and instead use various misleading euphemisms

to describe the role of nicotine, such as "satisfaction," "im-

pact," "strength," "rich aroma" and "pleasure."

H. DEFENDANTS' WRONGFUL AGREEMENT

65. This industry strategy depended for its success

on joint and concerted action by the tobacco companies and

the other defendants. Each of the defendants agreed not to

reveal to the public the true nature of TIRC, and later CTR,

and not to disclose adverse information on tobacco products

use and health, in order to protect continued industry sales

and profits and to prevent the manufacturers from having to

pay the health care costs associated with the use of tobacco

products.

66. In 1968, a memo addressed to the CEO of Lig-

gett regarding a meeting of the research directors of the to-

bacco companies stated on the topic of tobacco and health

“a general feeling that an industry approach as opposed to

an individual company approach was highly desirable."

67. An example of the industry's united front and

concerted action was demonstrated in 1977 after it was re-

vealed that an employee of US Tobacco had stated to The

New_York Times that “[smokeless tobacco] presents the

least possible danger of all [and] that it's when y6u light to-

bacco that you start doing damage." US Tobacco apolo-

gized to each of the cigarette companies despite the fact

that the disclosure did not directly implicate its own prod-

ucts. US Tobacco assured the cigarette companies that the

employee is "no longer employed at US Tobacco." Addi-

tionally, US Tobacco assured the other companies that it

had undertaken action to prevent a similar breach by its

ASO

employees. US Tobacco instituted a program within its

company to educate its employees that the industry position

was to disavow any relationship between tobacco products

and disease.

68. Cigarette manufacturers and smokeless tobacco

manufacturers monitored each other's research to assure

that their common objectives were achieved. Thus, Brown

& Williamson joined the Smokeless Tobacco Council in or-

der to make sure that research that confirmed the link be-

A tween tobacco products use and adverse health

consequences was not done. Brown & Williamson de-

scribed its reason for joining the Smokeless Tobacco Coun-

cil this way:

: "The primary purpose of such membership,

. however, would be to know what the

: Smokeless Tobacco Council is doing as a

protective measure both for our interest in

that product area and against the possibility

that some research they do could impact on

our Cigarette business." ‘

;

69. Each company also agreed not to perform its

own independent research on use of tobacco products and

health on their own. This agreement was referred to as the

"gentlemans [sic] agreement." A 1968 internal Philip Mor-.

ris draft memorandum entitled "Need for biological research: |

by Philip Morris research and development," and prepared:

j by the company's Vice President of Research and Develop-

ment, states:

"We have reason to believe that in spite of

the gentlemans agreement for the tobacco in-

dustry in previous years that at least some of

the major companies have been increasing

biological studies with their own facilities."

;

ASI

70. As indicated by the 1968 "gentlemans agree-

ment" memo, it was believed within the industry that indi-

vidual companies were performing certain research on their

own, in addition to the joint industry research. But the fun-

damental understanding and agreement remained intact: that

harmful information and activities would be restrained, sup-

pressed, and/or concealed. This included restraining, sup-

pressing, and concealing res¢arch on the health effects of

tobacco products use, including the addfctive qualities of to-

bacco, and restraining, concealing, suppressing the re-

search and marketing of less hazardous tobacco products.

I. SUPPRESSION AND CONCEALMENT OF

INDUSTRY-SPONSORED BIOLOGICAL

RESEARCH ;

1.Role of CTR as a "Front" —

71. In 1977, Addison Yeaman, Chairman and Presi-

dent of CTR, stated during a public speech that "[CTR] has

no propaganda function of any kind or any degree." Inter-

nal documents demonstrate, however, that the tobacco

companies' joint efforts undertaken through TIRC, and

later, through CTR, were not disinterested or objective.

Rather, they were designed and used to promote favorable

research, to suppress negative research when possible, and

to attack negative research where it could not be sup-

pressed, all in order to convince the public that the "case

against smoking is not closed."

72. A 1974 report to the CEO of Lorillard from a

research executive described CTR's scientific projects as

"hav[ing] not been selected against specific scientific goals,

but rather for various purposes such as public relations, po-

litical relations, position for litigation, etc. Thus, it seems

obvious that reviews of such programs for scientific

AS2

relevance and merit in the smoking and health field are not

likely to produce high ratings."

73. A 1972 internal document from a Tobacco In-

‘> stitute official to the group's President described the impor-

_ tance of using joint industry research to maintain public

doubt about the link between smoking and disease:

"For nearly twenty years, this industry has

employed a single strategy to defend itself on

three major fronts -- litigation, politics, and

public opinion. :

While the strategy was brilliantly conceived

and executed over the years helping us win

important battles, it is only fair to say that it

iS not - nor was it ever intended to be - a ve-

hicle for victory. On the contrary, it has al-

ways been a holding strategy, consisting of

-- creating doubt about the health. charge

without actually denying it

-- advocating the public's nght to smoke,

without actually urging them to take up the

practice

-- encouraging objective scientific research

as the only way to resolve the question of the

health hazard.

As an industry, therefore, we are committed

to an ill-defined middle ground which is ar-

ticulated by variations on the theme that, ‘the

case is not proved.' |

In the cigarette controversy, the public -- es-

pecially those who are present and potential

supporters (e.g. tobacco state congressmen

and heavy smokers) -- must perceive,

AS3

understand, and believe in evidence to sus-

tain their opinions that smoking may not be

the causal factor.

As things stand, we supply them with too lit-

tle in the way of ready-made credible

alternatives."

74. A 1978 memo addressed to the CTR file from a

Philip Morris official characterized CTR as "an industry

'shield.'". The memorandum goes on to state:

"the ‘public relations' value of CTR must be

considered and continued... . It is ex-

tremely important that the industry continue

to spend their dollars on research to show

that we don't agree that the case against

smoking is closed .... There is a 'CTR bas-

ket' which must be maintained for 'PR' pur-

poses. &;.."

75. In 1993, a former 24-year employee of CTR

confirmed publicly that the joint industry research efforts

were not objective:

"When CTR researchers found out that ciga-

rettes were bad and it was better not to

smoke, we didn't publicize that. The CTR is

just a lobbying thing. We were lobbying for

cigarettes. "

76. This and other evidence demonstrates that the

role and purpose of TIRC and CTR in the tobacco compa-

nies' strategy was to seek to use the public's trust to propa-

gate "pro-tobacco” propaganda. Ap industry official wrote

in his personal notes describing a meeting that included high

level officials from various tobacco companies that:

"CTR is best & cheapest insurance the to-

bacco industry can buy and without it the

AS4

Rh “te Rist Lakes DIAL ADORED ZA Pe

Industry would have to invent CTR or would

be dead."

77.. Nonetheless, in its annual reports published be-

tween 1985 and 1992, CTR stated that its Scientific Advi-

sory Board funded peer-reviewed research projects "judging

them solely on the basis of scientific merit and relevance."

In 1994, Dr. James F. Glenn, CEO of CTR, submitted

testimony to the Waxman Subcommittee that:

a. "The Council . . . sponsors research into ques-

tions of tobacco use and health and makes the results avail-

able to the public."

b. "Council grantees are assured complete scientific

freedom in conducting their studies . . . Publication of re-

search results is encouraged in all instances."

2. The Example of Dr. Homburger

78. In fact, CTR-sponsored research projects were

directed away from research that might add to the evidence

against the use of tobacco products. When CTR-sponsored

research did produce unfavorable results the information

was distorted or simply suppressed. For example, Dr.

Freddy Homburger, a researcher in Cambridge, Massachu-

setts, undertook a study of smoke exposure on hamsters.

According to Dr. Homburger, he received a grant from

CTR that was changed half-way through the study to a con-

tract "so they could control publication -- they were quite

open about that." Dr. Homburger has testified that when

the study was completed in 1974, the Scientific Director of

CTR and a CTR lawyer "didn't want us to call anything can- —

cer" and that they threatened Dr. Homburger with “never

get(ting] a penny more" if his paper was published wathon

deleting the word cancer.

79. An internal CTR document describes how Dr.

Homburger attempted to call a press conference about the

incident and how CTR stopped it:

"He. . . was to tell the press that the tobacco

industry was attempting to suppress impor-

tant scientific information about the harmful

effects of smoking. He was going to point

specifically at CTR. ...

"I arranged later that evening for it to be

canceled.

"Homburger was given a cordial welcome

and nicely 'hastened' out the door.

"P.S. I doubt if you or Tom will want to re-

tain this note."

3. CTR Special Projects Division

80. Another mechanism that CTR used to suppress

research results that demonstrated the link between tobacco

products and disease was to involve lawyers selectively, and

then invoke the attorney/client or work product privilege to

prevent the disclosure of harmful information. CTR used

the term "special projects" to refer to projects funded by

CTR that did not get approved through CTR's traditional

peer review process but that were still desirable for the in-

dustry's public relations and propaganda purposes. "Special

projects" were selected and monitored by industry lawyers

to prevent disclosure if the results were adverse to the in-

dustry position. One Philip Morris official characterized

CTR as a "front" for performing “special projects."

$1. Notes prepared at a 1981 meeting of the to-

bacco companies’ Committee of General Counsel state:

“When we started the CTR Special Projects,

the idea was that the scientific director of

AS6

Oe OEE TAT SS EI ISE Rs te le ee

* Pe a fa ey

Fela lI te PLO.

CTR would review a project. If he liked it, it

was a CTR special project. If he did not like

it, then it became a lawyers' special project. .

"[W]e were afraid of discovery for FTC and

Aviado, we wanted to protect it under the

lawyers. We did not want it out in the

open."

4. Use of Lawyers to Further Conspiracy

82. The Kansas City law firm of Shook, Hardy &

Bacon and other lawyers played a critical role in furthering

the conspiracy to suppress and conceal information about

the adverse health effects caused by the use of tobacco

products. The lawyers’ strategy was to attempt to protect

damaging tobacco-related documents from disclosure under

the attorney-client or work product privileges regardless of

whether such documents were prepared in anticipation of _

litigation or represented confidential communications made

between lawyer and client for the purpose of rendering legal

advice. Lawyers routinely provided a number of non-legal

services to the defendants such as deciding which CTR

"special projects" should receive funding, dispensing fund-

ing to the "scientists" involved in such projects, and design-

ing the scope and approach of the special project. Shook,

Hardy & Bacon also undertook to coordinate the tobacco

companies CTR "special projects" subterfuge.

83. For example, in 1976, Donald K. Hoel of

Shook, Hardy & Bacon wrote to in-house lawyers at the

various tobacco companies that a study to measure environ-

mental tobacco smoke should be modified in such a way

that so that the study would yield more favorable results for

the tobacco companies’ position. The study was

subsequently modified to de-emphasize the role of second-

hand tobacco smoke relating to indoor environmental

quality.

84. In addition, a May 19, 1981 letter from Ernest

Pepples, Vice President and General Counsel of Brown &

Williamson, to Patrick Sirridge of Shook, Hardy & Bacon

requests that Sirridge evaluate the qualifications of various

scientists seeking to conduct scientific studies for Brown &

Williamson. Sirridge responded by providing biographical

sketches of potential consultants including whether they

previously had taken scientific position favorable to the in-

dustry's position. Sirridge also cooperated with Pepples' re-

quest in 1984 to transfer the funding of some helpful

research by a cooperative scientist from a CTR account to a

law firm project: "I do not think . . . that we should con-

tinue burdening CTR with such programs, and instead sug-

gest that they be handled as law firm projects.

85. In 1972, William Shinn of Shook, Hardy & Ba-

con wrote to tobacco company officials that a potentially fa-

vorable study should be secretly funded by the tobacco

companies as a "non-CTR special project" in order to make

the study appear independent of the industry and thus

heighten its perception as unbiased and reliable.

86. By becoming intimately involved in the funding

and design of these scientific studies, these lawyers at-

tempted to further the conspiracy and fraud of the tobacco

companies and CTR by (1) clothing such studies in the

attorney-client or work product privilege in order to protect

them from disclosure if their results were unfavorable, and

(2) by creating the perception that CTR and the tobacco

companies were fairly and appropriately fulfilling their obli-

gations and promises to the public that they would, in a vig-

orous and unbiased manner investigate and report to the

public the link between their products and human disease.

A58

87. At least one tobacco company used similar tac-

tics in-house to suppress and avoid disclosure of its internal

research on smoking and disease. At a time when the com-

pany was resisting discovery in a number of personal injury

lawsuits, Brown & Williamson's general counsel, J. Ken-

drick Wells, recommended in a memorandum dated January

17, 1985, that much of the company's biological research be

declared "deadwood" and shipped to England. He recom-

mended that no notes, memos or lists be made about these

documents. Wells stated, "I had marked certain of the

document references with an X ... which I suggested were

deadwood in the behavioral and biological studies area. I

said that the "B" series are "Janus" series studies and should

also be considered as deadwood." ("Janus"was a name of a

project that attempted to isolate and remove the harmful

elements of tobacco.) Wells further recommended that the

research, development and engineering department also

should undertake "to remove the deadwood from the files."

88. Thus, the tobacco companies and their lawyers

have misused claims of attorney/client privilege to insulate

CTR-funded research projects and internal documents from

disclosure to the public and to government officials. This

conduct demonstrates the falsity of the tobacco companies'

representations that they would jointly fund objective re-

search and report the results of that research to the public.

J. SUPPRESSION AND CONCEALMENT OF INTER

NAL BIOLOGICAL RESEARCH

1."Mouse House Massacre"

89. In the 1960s, RJR established a facility in

Winston-Salem, North Carolina, to perform research on the

health effects of smoking using mice. Nicknamed the

AS9

"Mouse House," RJR scientists conducted research in a

number of specific areas, including studies of the actual

mechanism whereby smoking causes emphysema in the

lungs

90. Although the RJR lab made significant progress

in understanding this mechanism, RJR disbanded the entire

research division in one day, and fired all 26 scientists with-

out notice.

91. Several months before the 1970 closure and fir-

ings, RJR attorneys collected dozens of research notebooks

from the scientists. The notebooks have still not been dis-

closed. One of the researchers later stated about RJR's ex-

ecutives and lawyers that "they like to take the position that

you can't prove harm because you don't know mechanism. .

And sitting right under their noses is evidence of mecha-

nism{.] What are they going to do with this stuff? They de-

cided to kill it."

92. Internally, an R!R-commissioned report favora-

bly described the Mouse House work as "the more impor-

tant of the smoking and health research effort because it

comes close to determining what was thought to be the un-

derlying pathobiology of emphysema." None of the work

done at the "Mouse House" was disclosed to the public.

2. The "Safer Cigarette"

93. Several tobacco companies' biological research

appears to have been directed toward developing a cigarette

with reduced health risks. These companies performed re-

search that involved dividing cigarette smoke into its differ-

ent chemical constituents, or "fractions," to discover which

part of the cigarette smoke caused disease. Several compa-

nies were successful in discovering which constituents in to-

bacco smoke were carcinogens, or were otherwise linked to

A60

diseases. This research was kept secret and never reported

to the public.

94. A number of companies also successfully re-

moved certain harmful constituents from cigarette smoke or

treated the products to decrease the harmful effects of such

constituents, and developed prototype cigarettes with re-

duced adverse health effects. These products were never

marketed.

95. A memorandum written by an attorney at

Shook, Hardy & Bacon articulated the industry-wide posi-

tion regarding the issue of a so-called "safer cigarette" The

1987 memorandum, referring to the marketing by RJR of a

smokeless cigarette, Premier, stated that the smokeless ciga-

rette could "have significant effects on the tobacco indus-

try's joint defense efforts" and that "[t]he industry position

has always been that there is no alternative design for a

cigarette as we know them." The attorney also noted that.

"unfortunately, the Reynolds announcement | - seriously

undercuts this component of the industry's defense."

96. As early as 1958, a memorandum from a Philip

Morris researcher to the company's Vice President of Re-

search and Development proposed that the company at-

tempt to make a "safer cigarette" that could enable it to

"jump on the other side of the fence. __ on the issue of to-

bacco smoking and health ._ ."

97. Although Philip Morris did undertake research

and development of such a product, the company never re-

leased the research, and never informed the public that ex-

isting cigarettes were not safe or that a “safer cigarette" was

possible. As a research and development presentation to

Philip Morris’ Board of Directors in 1964 stated:

"Two years ago, in anticipation of a health

crisis to be precipitated by the Smoking and

Aél

Health Report of the Surgeon General's

Committee, we undertook to develop a

physiologically superior cigarette.

{W]e put together a charcoal filter product

with performance superior to anything in the

market place. That product was known as

Saratoga. Physiologically it was an out-

standing cigarette. Unfortunately then after

much discussion we decided not to tell the

physiological story which might have ap-

pealed to a health conscious segment of the

market. The product as test marketed didn't

have good ‘taste’ and consequently was unac-

ceptable to the public ignorant of its physio-

logical superiority."

98. The research and development department at

Philip Morris nonetheless viewed continued research into

"safer cigarettes" as necessary to compete in the event that

another cigarette company marketed a "safer cigarette."

The presentation to the Philip Morris Board of Directors

continued:

"The Research and Development Depart-

ment 1s working to establish a strong techno-

logical! base with both defensive and

offensive capabilities in the smoking ard

health situation. Our philosophy is not to

start a war, but if war comes, we aim to fight

well and to win."

(a) Liggett "Safer Cigarette": XA

99. Liggett also developed a cigarette with reduced

adverse health effects. Company researchers believed that

they had discovered which cigarette smoke constituents

were carcinogens, and found a way to remove them. De-

spite Liggett's belief that the product was commercially

marketable, the company never marketed the cigarette and

suppressed the research that led to its development.

100. Liggett began its research by repeating the

smoke condensate painting studies of mice performed by

Dr. Wynder through a contract with a consulting firm. The

consulting firm confirmed Dr. Wynder's findings, and as a

result, in 1968, Liggett began "a tobacco additive program

designed to reduce or eliminate the tumorigenic activity of

cigarette smoke."

101. By 1979, Liggett had declared the work a

success. Company documents state:

"Briefly, as a result of 20 years effort in co-

operation with [the consulting firm], we have

developed a cigarette system which produces

smoke of reduced biological activity. . . .

[T]here can be no argument that the use of

the additives has resulted in a product with

lower carcinogenic effects... ."

102. Liggett's "safer cigarette," a product called

"XA," was never marketed and the XA project was aban-

doned. Liggett did so for two reasons. First, disclosing the

feasibility of a "safer cigarette" would imply that all existing

cigarettes were not safe. Second, Philip Morris apparently

threatened Liggett with retaliation if Liggett violated the in-

dustry agreement not to disclose negative information on

use of tobacco products and health. Liggett's Assistant Re-

search Director, Dr. James Mold, reported that Liggett's

president said that he was "told by someone in the Philip

Morris Company that if we tried to market such a product

that they would clobber us."

A63

(b) Liggett, James Mold and Suppression of the XA

Research

103. During the XA project, Liggett attempted to

insulate the research by the use of company lawyers. Ac-

cording to Dr. Mold, after 1975, "all meetings that we had

regarding this project were to be attended by a lawyer... .

All paper that was generated . . . [was] to be directed to the

Law Department." Dr. Mold stated that lawyers even col-

lected all the notes after each meeting.

104. Dr. Mold stated that despite its significance,

Liggett's lawyers not only ultimately succeeded in stopping

the project, but ordered him not to publish the results of the

research that led to the "safer cigarette." Only an abstract

of the paper, modified by the legal department, was pub-

lished by the consulting firm, without Dr. Mold's name.

105. When asked why Liggett never marketed the

safer XA cigarette, Dr. Mold explained that:

"(Management circles] felt that such a ciga-

rette if put on the market would seriously in-

dict them for having sold other types of

cigarettes that didn't contain this, for exam-

ple. Or that they were carrying on this bio-

logical research at the same time saying it

meant nothing."

106. Liggett had also obtained a patent for the

process it had discovered to produce its "safer cigarette."

The patent application described the reduction in cancer in

mouse studies, prompting stories in the media that Liggett

was the first cigarette company to admit that smoking

caused cancer. Liggett responded by issuing a press release

it called a "Liggettgram" which stated:

A6é4

"Liggett and the cigarette industry continue

to deny, as they have consistently, that any

conclusions can be drawn relating such test

results on mice in laboratories to cancer in

human beings. It has never been established

that smoking is a cause of human cancer.

"The laboratory experiments reported in the

patent were conducted for Liggett by an in-

dependent researcher, The Life Sciences Di-

vision of Arthur D. Little, Inc."

107. Dr. Mold has estimated that, at the time Lig-

gett made this statement, Liggett had spent a total of $10

million on research involving mice, in part to develop the

XA cigarette. Liggett's internal reports on the benefit of the

XA, and the absence of increased risk of harm from the ad-

ditives used, specifically used animal studies as reliable indi-

cators of the health effect of the product on humans.

108. Brown & Williamson also attempted to de-

velop a so-called "safer cigarette." By the end of the

1970's, however, Brown & Williamson, in a pattern that

was repeated throughout the industry, halted all work on a

"safer cigarette."

109. RJR also undertook efforts to develop a so-

called "safer cigarette," focusing on delivering nicotine to

the consumer without the harmful constituents of tobacco

smoke. In the late 1980's, RJR developed and test marketed

Premier, a smokeless and virtually tobacco-free cigarette,

which was, in essence, a nicotine delivery system. RJR ulti-

mately abandoned development of Premier or other "safer"

cigarette products.

A65

K. ENVIRONMENTAL TOBACCO SMOKE

110. The tobacco companies have also attempted

to mislead the public regarding the health risks of environ-

mental tobacco smoke. Environmental tobacco smoke, also

called "second hand smoke" primarily consists of sidestream

smoke (SSS) and mainstream smoke (MSS). _ SSS 1s the

smoke that issues from the end of a burning cigarette, cigar

or pipe in between puffs. MSS is the smoke that smokers

draw into and expel from their lungs. Approximately 85%

of environmental tobacco smoke is SSS.

111. The United States Environmental Protection

Agency has listed environmental tobacco smoke as a Class

A (known human) carcinogen and a major source of respira-

tory problems in children. It is estimated that 650-700 non-

smoking Connecticut residents die each year due to the ef-

fects of environmental tobacco smoke.

112. The tobacco companies have long known that

environmental tobacco smoke is dangerous to human health

but, despite their repeated promises to investigate the health

risks of their products, have not disclosed this knowledge to

the public. For example, internal documents of Brown &

Williamson and BAT demonstrate that, as early as the

mid-1970's, the industry began the work of identifying

"sidestream constituents which may be considered harmful

to non smokers." Internal documents show that BAT was

actively engaged in measuring the levels of nitrosamine, po-

tent human carcinogens, in second hand smoke:

"It is clear that in many countries there is a

concern over the level of nitrosamine in

foodstuffs. This explains in part the sensitiv-

ity to the presence of nitrosamine in tobacco

smoke, and, perhaps particularly, the levels

of nitrosamine in sidestream smoke. The

A66

latter is a potential threat to the currently

held view by many authorities that passive

smoking does not constitute a direct hazard."

113. In fact, in recognition of the dangers of envi-

ronmental tobacco smoke, Brown & Williamson and BAT

secretly attempted to reduce the amount of sidestream

smoke from cigarettes. Notes from a 1980 BAT research

conference state: "There was strong support for research

into the generation and control of sidestream smoke.

The research into the source and mechanism of formation of

nitrosamine in both sidestream and mainstream should be

considered with urgency." Notes from «a 1982 research

conference state: "Sidestream has long been known to be

different chemically from mainstream, but only recently have

there been signs from [BAT's] inhalation studies that the

biological activity [carcinogenic effect] of sidestream may

also be significantly different from mainstream. An early

design of reduced sidestream product developed at [BAT's

research facilities in Southampton, England] has recently

been screened."

114. In conjunction with the attempt to reduce

sidestream smoke because of its admitted dangers, Brown &

Williamson and BAT -- in violation of the promise to inves-

tigate in an unbiased manner the health effects of smoking --

also conducted defensive scientific research designed "to an-

ticipate and refute claims about the health effects of passive

smoking."

115. The attempt to mislead the public about the

dangers of environmental tobacco smoke and to conceal and

distort the true facts was not limited to Brown & William-

son and BAT. The tobacco industry as a whole, through

CTR and the Tobacco Institute, also participated in the de-

ception and wrongful conduct. For example, CTR spon-

sored a research project on sick building syndrome to be

A67

conducted by an allegedly independent firm. However, the

Tobacco Institute, the industry's chief public relations and

lobbying arm, chose the homes that would participate in the

study. The tobacco companies also heavily relied on another

study, funded through an industry sponsored organization,

to support its claim that the dangers of environmental to-

bacco smoke were not proven. That study was later found,

following a congressional inquiry, to be rife with falsified

data and grossly underestimated the impacts of environ-

mental tobacco smoke on indoor air quality.

116. The tobacco companies have also attacked in-

dependent studies that demonstrate the link between envi-

ronmental tobacco smoke and adverse health effects despite

internally recognizing their validity. For example, a 1981

Japanese study found that non-smoking women married to

smokers have a greater chance of dying of lung cancer than

non-smoking women married to non-smokers. The To-

bacco Institute immediately ran large advertisements in

newspapers and magazines denouncing the study despite the

fact that industry scientists privately recognized its validity.

L. SUCCESS AND RENEWAL

117. Since its inception in the mid 1950's, the plan

of the tobacco companies to engage in a pattern of misrep-

resentation, disinformation and suppression regarding the

adverse health effects caused by tobacco products has been

carried out for four main purposes: (1) to prevent, limit or

forestall the erosion of demand for tobacco products; (2) to

shield tobacco companies from having to pay the health care

costs for tobacco-related diseases; (3) to restrain competi-

tion within the tobacco products industry and (4) to pre-

vent, limit and forestall governmental regulation of tobacco

products. Reflecting back on this plan, a 1972 internal To-

bacco Institute memorandum stated:

A68

"For nearly twenty years, this industry has

employed a single strategy to defend itself on

three major fronts -- litigation, politics and

public opinion...

On the litigation front for which the strategy

was designed, it has been successful... [W le

have not lost a liability case."

118. That 1972 Tobacco Institute memorandum

recognized the need to continue and intensify the work of

the past twenty years:

"In the cigarette controversy, the public --

especially those who are present and poten-

tial supporters (e.g., tobacco state congress-

man and heavy smokers) -- must perceive,

understand and believe in evidence to sustain

their opinions that smoking may not be a

causal factor.

As things stand, we supply them with too lit-

tle in the way of ready-made credible

alternatives."

The memorandum goes on to propose the "steps required to

start a shift in public opinion" in part by designing a study

whose results would be disclosed only "if favorable."

119. Despite overwhelming scientific evidence, and

the confirmation of this evidence by their own internal re-

search, the tobacco companies and the other defendants

continue to this day to repeat over and over, in a unified

stance, that there is no causal connection between the use of

tobacco products and human diseases. These representa-

tions are misleading, deceptive and untrue They rest at the

heart of the industry's ongoing conspiracy to market and

profit from a product it knows is deadly.

A69

IV. THE ROLE OF NICOTINE IN TOBACCO

PRODUCTS

120. The tobacco companies also have made every

effort to conceal and deny that the nicotine in tobacco prod-

ucts is a powerfully addictive substance. Because nicotine

is addictive, consumers who use tobacco products often find

themselves "hooked" and are unable to stop using the prod-

ucts even if they want to. Of the seventeen million smokers

who try to quit each year, fewer than one out of ten suc-

ceeds. The tobacco companies have carefully studied nico-

tine's addictive character and acted upon that knowledge to

maintain tobacco products sales. Yet, each of the tobacco

companies has denied that nicotine is addictive.

121. This public deception and the industry's secret

manipulation of nicotine were and are critically important to

the tobacco companies. As objective researchers increased

their warnings about the health dangers of tobacco prod-

ucts, nicotine addiction kept people using those products

despite those warnings. This aspect of their deception al-

lowed and continues to allow the tobacco companies to

continue to sell their dangerous products -- even to those

who eventually come to doubt the industry's health claims

And if a new consumer is fooled for a time by "pro-

tobacco" disinformation on health or seduced by the indus-

try's aggressive marketing techniques, and uses tobacco

products, it may well be too late. Instead of a simple deci-

sion not to purchase a product, the consumer then must

fight an addiction to nicotine.

A. INDUSTRY RESEARCH OF NICOTINE AND

KNOWLEDGE OF ITS ADDICTIVENESS

122. Tobacco companies have known since at

least the early 1960s of the addictive properties of the nico-

tine contained in the tobacco products they manufacture and

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sell. Industry documents are replete with evidence of such

knowledge:

a. In 1962, Sir Charles Ellis, scientific advisor to the

board of directors of BAT, stated at a meeting of BAT's

worldwide subsidiaries, that "smoking is a habit of addic-

tion" and that "[n]icotine is not only a very fine drug, but

the technique of administration by smoking has considerable

psychological advantages... ." He subsequently described

Brown & Williamson as being "in the nicotine rather than

the tobacco industry."

b. A research report from 1963 commissioned by

Brown & Williamson describes the results if a chronic to-

bacco products user is denied nicotine: "A body left in this

unbalanced state craves for renewed drug intake in order to

restore the physiological equilibrium. This unconscious de-

sire explains the addiction of the individual to nicotine."

c. Addison Yeaman, general counsel at Brown &

Williamson, summarized his view about nicotine in an inter-

nal memorandum also in 1963: “Moreover, nicotine is ad-

dictive. We are, then, in the business of selling nicotine, an

addictive drug effective in the release of stress mechanisms."

d. Internal reports prepared by Philip Morris in 1972

and the Philip Morris U.S.A. Research Center in March

1978, demonstrate Philip Morris' understanding of the role

of nicotine in tobacco use: "We think that most smokers can

be considered nicotine seekers, for the pharmacological ef-

fect of nicotine is one of the rewards that come from smok-

ing. When the smoker quits, he foregoes [sic] his

accustomed nicotine. The change is very noticeable, he

misses the reward, and so he returns to smoking."

e. From 1940 to 1970, ATC conducted its own

nicotine research, funding, in whole or in part, over 90 stud-

ies on the pharmacological and other effects of nicotine on

A7]

the body. This research constituted 80% of all biological

studies funded by ATC over this period. From its earliest

work, ATC understood that nicotine had addictive qualities.

In a 1945 study summarized in an ATC report on its re-

search, 24 smokers were given cigarettes with extremely

low levels of nicotine. The study showed that 12 of the

subjects "definitely missed the nicotine" and 9 of the sub-

jects continued to do so throughout the one month period

of the study. The study concluded that "with some indi-

viduals, nicotine becomes a major factor in the cigarette

habit."

f. In a 1972 document entitled "RJR confidential re-

search planning memorandum on the nature of the tobacco

business and the crucial role of nicotine therein," an RJR ex-

ecutive wrote: "In a sense, the tobacco industry may be

thought of as being a specialized, highly ritualized, and styl-

ized segment of the pharmaceutical industry. Tobacco

products uniquely contain and deliver nicotine, a potent

drug with a variety of physiological effects."

g. In a 1972 memorandum on product development,

US Tobacco noted that a particular focus should be on as-

suring adequate "nicotine satisfaction." In a 1981 mem

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