Opposition Brief — Blumenthal v. Philip Morris, Inc.

{4 ; Repos Your UL.

[™ FILED

No. 97-1399

IN THE

Supreme Court of the Hnited States

OCTOBER TERM, 1997

>

RICHARD BLUMENTHAL, ATTORNEY GENERAL

OF CONNECTICUT

Petitioner,

—against—

PHILIF MORRIS, INC., ET AL.,

Respondents.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE SECOND CIRCUIT

BRIEF OF RESPONDENTS IN OPPOSITION

Peter C. Hein* Of Counsel:

WACHTELL, LIPTON, ROSEN

& KATZ

51 West 52nd Street

New York, New York 10019

Ben A. Solnit

TYLER COOPER & ALCORN

205 Church Street

P.O. Box 1936

712) 403-

(212) 403-1000 New Haven, Connecticut 06509-1910

Attorneys for Respondent (203) 784-8200

Philip Morris Incorporated

* Counsel of Record

(Counsel for Other Respondents Listed on Reverse Side of Cover)

Donald B. Ayer*

JONES, DAY, REAVIS & POGUE

Metropolitan Square

1450 G Street, N.W., Suite 700

Washington, D.C. 20005-2088

(292) 879-3939

Attorneys for Respondent

R.J. Reynolds Tobacco Company

Marjorie Press Lindblom*

KIRKLAND & ELLIS

153 East 53rd Street

New York, New York 10022

(212) 446-4800

Attorneys for Respondent

Brown & Williamson Tobacco

Corporation

Gene E. Voigts*

SHOOK, HARDY & BACON, LLP

One Kansas City Place

1200 Main Street

Kansas City, Missouri 64105

(816) 474-6550

Attorneys for Respondent

Lorillard Tobacco Company

* Counsel of Record

Of Counsel:

Edward F. Hennessey, III

David Thomas Ryan

ROBINSON & COLE

One Commercial Plaza

280 Trumbull Street

Hartford, Connecticut 06103-3597

(860) 275-8200

Of Counsel:

Francis H. Morrison, III

James H. Rotondo

DAY, BERRY & HOWARD

CityPlace I

Hartford, Connecticut 06103

(860) 275-0100

Of Counsel:

James R. Fogarty

Andrew P. Nemiroff

Lawrence F. Reilly

EPSTEIN FOGARTY COHEN

& SELBY LLC

88 Field Point Road

P.O. Box 2508

Greenwich, Connecticut 06836-2508

(203) 661-1000

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QUESTION PRESENTED

Where federal plaintiffs have brought a complaint chal-

lenging under the United States Constitution and federal law a

State official’s threatened attempt retroactively to shift massive

costs of the state’s own voluntarily-undertaken Medicaid pro-

gram to them through a radical departure from established prin-

ciples of law, must the federal court dismiss the federal

complaint on Younger abstention grounds simply because the

State official thereafter brings a state court lawsuit which — in

addition to the claims for a monetary recovery of medical

expenses paid challenged by the federal lawsuit — also asserts

alleged “enforcement” claims which the State official self-serv-

ingly proclaims to be important, and notwithstanding that: (1)

the alleged “enforcement” claims in the state lawsuit are con-

ceded by the State official to be “unconnected” with the mon-

etary recovery claims that are being challenged in the federal

lawsuit; (2) the federal lawsuit does not seek to interfere with

any such admittedly “unconnected” enforcement claims: and

(3) even as to the purported “enforcement” claims with which

the federal lawsuit does not seek to interfere, the state official

fails to offer any evidence to support his assertions of impor-

tance and there is ample evidence in the record to the contrary?

li

LIST OF PARTIES

The plaintiffs in this action are Philip Morris Incorporated,

R.J. Reynolds Tobacco Company, Brown & Williamson

Tobacco Corporation, and Lorillard Tobacco Company. The

defendant is Richard Blumenthal, Attorney General of Con-

necticut.

The following is a list of respondents’ parent companies and

non-wholly owned subsidiaries, submitted pursuant to Supreme

Court Rule 29.6.

Plaintiff-Respondent Philip Morris Incorporated has the fol-

lowing parent companies, subsidiaries, and affiliates that have

issued shares to the public:

Philip Morris Companies Inc.

Plaintiff-Respondent R.J. Reynolds Tobacco Co. has the fol-

lowing parent companies, subsidiaries, and affiliates that have

issued shares to the public:

RJR Nabisco Holdings Corp.

RJR Nabisco, Inc.

Nabisco Holdings Corp.

Plaintiff-Respondent Brown & Williamson Tobacco Corp.

(including as successor by merger to The American Tobacco

Company) has the following parent companies, subsidiaries,

and affiliates that have issued shares to the public:

B.A.T Industries p.l.c.

Nobleza-Piccardo S.A.I.C. y F. (Argentina)

W.D. & H.O. Wills Holdings Limited (Australia)

British American Tobacco Bangladesh Tobacco

Company Limited (Bangladesh)

Polo Industria and Comercia Ltda (Brazil)

Souza Cruz S.A. (Brazil)

B.A.T. Cameroun S.A. (Cameroon)

Imasco Limited (Canada)

Compania Chilena de Tabacos S.A.

Republic Tobacco Co. (Costa Rica)

Tate BNR aNd thine ONO OU, BHAA ae

gra pt es Wir Face ae!

aN ASR Se ih aN!

ili

Skandinavisk Tobakskompagni A/s (Denmark)

Cigarreria Morazan SA de CV (El Salvador)

Pioneer Tobacco Company Limited (Ghana)

Tabacalera Nacional, S.A. (Guatemala)

Demerara Tobacco Company Limited (Guyana)

Tabacalera Hondurena S.A. (Honduras)

BAT Pecsi Dohanygyar Kft (Hungary)

I.T.C. Limited (India)

VST Industries Limited (India)

P.T. BAT Indonesia (Indonesia)

Allied Dunbar International Specialist Funds p.l.c.

(Ireland)

B.A.T. Kenya Limited (Kenya)

Threadneedle Global Assets SICAV (Luxembourg)

Malaysian Tobacco Company Berhad (Malaysia)

Tabacalera Nicaraguense SA (Nicaragua)

Nigerian Tobacco Company PLC (Nigeria)

Pakistan Tobacco Company Limited (Pakistan)

British American Tobacco — STF (Russia)

OJSC “British American Tobacco-Yava” (Russia)

Aureol Tobacco Company Limited (Sierra Leone)

British-American Tobacco Company (Singapore)

Limited (Singapore)

British American Tobacco Holdings (South Africa)

Limited

South African Eagle Insurance Company Limited

(South Africa)

Ceylon Tobacco Company Limited (Sri Lanka)

CTC Eagle Insurance Company Limited (Sri Lanka)

British American Tobacco Switzerland S.A.

The West Indian Tobacco Company Limited

(Trinidad & Tobago)

B.A.T. Zimbabwe Limited (Zimbabwe)

Plaintiff-Respondent Lorillard Tobacco Company has the fol-

lowing parent companies, subsidiaries, and affiliates that have

issued shares to the public:

Loews Corporation, the indirect parent of Lorillard Tobacco

Company.

iV

TABLE OF CONTENTS

PAGE

CORT iee REC IEY OL UIOT EEE 6 a5 soc Sava Keehn te akewsaniosan i

Lie SA PASI 6A 45 ON bas cn kbs CRA RM awS eeadaes se il

TABLE OF AUTERORIE eb igdesns ce xdthecss cavswenes vi

Fares BT soa ck le ak nao ea cd ee l

RAR REET RD Fe GB iis vad ncp cu anvisidcve kee l

REASONS FOR DENYING THE WRIT

A. This Case Does Not Present the Questions that

Petitioner Contends It Presents................... 9

B. Petitioner Has Failed to Show that the Court

of Appeals Rendered a Decision in Conflict

with Any Decision of this Court or Other Court

OF DUNES 6 s9'ces onaci ceca en thapaeceal Ooeniania ds 10

1. No Conflict with Any Decision of Other

Coruint HE ER iccvks ce us Cae ests chore’ 10

2. No Conflict with Any Decision of this

CONES cs sinks do eer sendcumed teaaeeban itd 14

C. This Case Would in Any Event Be an

Inappropriate Vehicle for Review of Any Issues

Petitioner Contends It Presents Because the

Second Circuit Has Remanded for Consideration

OF FUTIMIR FI 6 i vv aencsnakeecapherieeesss 20

PAGE

DE crave ho pinubee eo aah ea rec eee ek 20

v1

TABLE OF AUTHORITIES

Cases PAGE

AFSCME v. Tristano, 898 F.2d 1302 (7th Cir. 1990) .. 1]

Ayers Vv. Philadelphia Housing Authority, 908 F.2d

CRRA TSG OE, Fei ckvsccn wie vc ganda Uobasves ae 12n

Blue Cross and Blue Shield of Connecticut, Inc. v.

Mike, 439 A.2d 1026 (Conn. 1981)............... 22

Cate v. Oldham, 707 F.2d 1176 (11th Cir. 1983) ...... 16

City and County of San Francisco v. Philip Morris, .

Inc., 957 F. Supp. 1130 (N.D. Cal. 1997)......... 14

Colorado River Water Conservation Dist. v. United

OS Oe Tre ee OE OG ak vk 60 oa oS eee naks wees 18

DeLoreto v. Ment, 944 F. Supp. 1023 (D. Conn.

Te obo hss eavtes CaN SAAN EWR eaadaeer eds 23n

Gwynedd Properties, Inc. v. Lower Gwynedd Township,

PF FB TEM s COG CA, BOG RE on ii eeediecneevsasivs 11

International Longshoremen’s Ass'n v. The Waterfront

Commission of New York Harbor, 495 F. Supp.

1101 (S.D.N.Y. 1980), aff’d in part and rev'd in

part on other grounds, 642 F.2d 666 (2d Cir.),

cert. denied, 454 U.S. 966 (1981) ................ 1]

Massachusetts v. Philip Morris, Inc., 942 F. Supp.

Ge EAP ee ED hlaie eb sou a woo k Opa okedaeekae 13n

Middlesex County Ethics Comm. v. Garden State Bar

Bas Sh, GOT AEs RA x cae e be ae eaavens 11

Mobil Oil Corp. v. City of Long Beach, 772 F.2d 534

PU SA See aos akin bz snteiande a eee: 16

Face pape gaa Rag aes RES ARNE at A ATTAINS aT Bee aie AIRED LAS i

PAGE

Moore v. Sims, 442 U.S. 415 (1979) ......0.0.00..2.... 18

Morales v. Trans World Airlines, 504 U.S. 374

ER UPUE Sct eas or ie dee ce es ee 6n

New Orleans Pub. Serv., Inc. v. Council of New

Orleans, 491 U.S. 350 (1989).............. 8, 14, 15, 18

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

EME Rs BORED Sticd Mindi ce enn Bowe ee Pe chec ekoa ks passim

Philip Morris, Inc. v. Botelho, No. A97-0003-CV

(HRH) (D. Alaska April 15, 1998) ............... lin

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

See Cas Ps OE hs ok sss a ek cw passim

Planned Parenthood League of Massachusetts v.

Bellotti, 868 F.2d 459 (1st Cir. 1989)............. 1]

Quackenbush vy. Allstate Ins. Co., 116 S. Ct. 1712

DEPOT eu b Cie cs hese uaa halen he haye Cubes ous 11, 16, 18

Strasen v. Strasen, 897 F. Supp. 1179 (E.D. Wis.

PSS 66s Gee oo ets Wa ma ds 6S ade sha yu cw cl 23n

Tileston v. Ullman, 26 A.2d 582 (Conn. 1942) ........ 22

Trainor v. Hernandez, 431 U.S. 434 (1977)....... 16, 17, 18

Statutes

CEs RE ue ony we Coca cio Sua k SoUebwiccieees en 12n

Be eat Eo eR Ree o as ocd Bh eso Sn

fag ke it EOFS Bs 6 ESPERO RR Riri x contin Eieaaar ein ane ne eae Sn

JURISDICTION

Petitioner asserts that he has “invoke[d] the jurisdiction of

this Court under 28 U.S.C. § 1281(1).” Petition at 2. No such

federal statute exists. It would appear, however, that 28 U.S.C.

§ 1254(1) would be applicable, albeit Petitioner does not cite

to that statute. In any event, as shown in this brief, there is no

reason for this Court to exercise jurisdiction in this case.

STATEMENT OF THE CASE

Although the Connecticut Attorney General barely mentions

it and fails even to include it in his appendix, the complaint

that is at issuc in this action — which the Second Circuit

upheld against 1 Younger abstention challenge — is the federal

complaint filed by the plaintiff tobacco companies (the “Com-

panies”) against the Connecticut Attorney General. That com-

plaint (the “Federal Complaint”):

° alleges that the Attorney General was threatening to

bring a lawsuit (the “Threatened Lawsuit”) “seeking

hundreds of millions of dollars from plaintiffs. . .

to pay for Medicaid payments that Connecticut vol-

untarily undertook to make to its Medicaid-eligible

residents, wholly irrespective of whether plaintiffs

would have any liability under established princi-

ples of law to pay for the medical care of any actual

Medicaid recipient.” RA 3 (at 49, emphasis added):

° alleges that “[t]he Threatened Lawsuit violates

basic principles of constitutional law . . . [by]

seek[ing] to impose upon plaintiffs . . . massive

costs of the Medicaid program that Connecticut has

voluntarily chosen to establish, irrespective of tra-

ditional principles of law governing the rights and

duties of plaintiffs with respect to any actual Med-

icaid recipient.” RA 6 (at 4.16, emphasis added);

and

° seeks declaratory and permanent injunctive relief

against the Attorney General “from prosecuting,

imposing or enforcing liability” pursuant to that Threat-

ened Lawsuit. RA 27-28 (prayers for relief, emphasis

added). See also, e.g., RA 4-5 (412), RA 6 (917), RA 9-

15 (99 25-41).!

As the Second Circuit recognized, for months preceding the

filing of the Complaint, the Attorney General had been threat-

ening to file a lawsuit against the Companies, seeking to hold

them liable for hundreds of millions of dollars in health care

payments voluntarily expended by Connecticut. Philip Morris,

inc. v. Blumenthal, 123 F.3d 103, 104 (2d Cir. 1997); see RA 3-

6, 15-17 (Complaint 999-15, 41-47). Thus, “[iJn 1995, the

Attorney General attempted to obtain legislative authorization

for a lawsuit against the tobacco companies.” 123 F.3d at 104.

A bill that would have provided that desired authorization was

introduced (1995 House Bill 6991), and the Attorney General

himself appeared and gave testimony before the Judiciary

Committee of the Connecticut General Assembly in support

of it. JA266-75. But “[t]he Connecticut General Assembly

declined to enact legislation authorizing such a suit.” 123 F.3d

at 104.

Once again, in March 1996, the Attorney General made an

appearance before the General Assembly to give testimony in

support of another bill that would have authorized him to file

his threatened lawsuit against the tobacco companies (1996

House Bill 5817). 123 F.3d at 104; see RA 3-4 (Complaint

91 10); JA276-302. But once again, notwithstanding the Attor-

ney General’s personal appearance and support, the General

Assembly denied authorization. 123 F.3d at 104; see RA 4, 15

(Complaint 99 11, 40).

“Notwithstanding the General Assembly’s denial of autho-

rization, the Attorney General made clear through the press that

he intended to proceed with the legal action.” 123 F.3d at 104.

See also RA 16-17 (Complaint 99 43-46). As detailed in the

! The Companies’ Federal Complaint is attached hereto as Respon-

dents’ Appendix. Citations to Respondents’ Appendix are labeled “RA”;

citations to Petitioner's Appendix are labeled “PA”; and citations to the

Joint Appendix that was before the Second Circuit are labeled “JA.”

EEE

3

Companies’ Federal Complaint, the press reported in the ensu-

ing weeks and months following the failure of the proposed

bills that, despite these legislative rejections, the Attorney Gen-

eral: “could file a lawsuit against the major tobacco companies

within several weeks, seeking millions in repayment for

Medicaid and Medicare expenses for tobacco-related illnesses”:

that the lawsuit would seek “to recover for Connecticut tax-

payers” health-care costs attributed to smoking, which defen-

dant estimated as “$900 million”; that the Attorney General

had “filed notices with newspapers across the state. . . seek-

ing proposals for law firms to work with his office on the suit”

on a contingency fee basis; and that the Attorney General

“hope[d] to file the suit by late spring or early summer.” RA

16-17 (Complaint 99 43-46).

The theory of the Attorney General’s threatened lawsuit —

without any precedent under Connecticut law — was that the

Companies should bear Connecticut's health care costs

allegedly associated with smoking: (1) without regard to

whether the Companies would be liable, for health care costs

or otherwise, to any individual smoker or other person (RA 3-

5, 19 (Complaint 9910, 12, 55)); (2) notwithstanding that both

federal and Connecticut law expressly sanction tobacco prod-

ucts as a legal article of commerce, and that Connecticut has

for many years taxed and itself sold cigarettes, garnering mil-

lions of dollars by doing so (RA 6-8 (Complaint 94 18-20);

JA200-47); and (3) notwithstanding that the Attorney General

was not purporting to sue the manufacturers of any other prod-

uct on this basis, but rather was selectively asserting this

extraordinary theory of liability against a certain disfavored

industry (RA 2, 3, 18, 20 (Complaint 992, 9, 51, 59)). This

massive and unprecedented liability, moreover, was to be

imposed on both a retroactive and prospective basis. RA 3, 20

(Complaint 99 9, 59).

In his pre-suit press statements, the Attorney General pre-

sented his threatened lawsuit as one seeking to recover money

purportedly for health care payments made by the State of Con-

necticut, arguing that Connecticut taxpayers should support his

lawsuit because it may produce a huge monetary recovery for

their own benefit:

° March 19, 1996 press release: “Our goal is simply to

recover money that taxpayers have paid for the

health care costs of tobacco-related illnesses.”

JA260 (emphasis added).

° May 1, 1996 press release: “We are preparing to file

a lawsuit that will demand repayment for state

expenses for tobacco-related illnesses”; “the

tobacco industry is responsible for hundreds of mil-

lions of dollars in state expenses . . . and we

believe this lawsuit will succeed in bringing mil-

lions of dollars back to taxpayers.” JA262 (empha-

sis added).

° July 1, 1996 press release: “Connecticut Attorney

General Richard Blumenthal today blasted an

attempt to block Connecticut's effort to recoup hun-

dreds of millions of taxpayer dollars spent on

tobacco-related diseases,” the Federal Complaint

was an effort to “hamper our efforts to recover

money rightly due the state of Connecticut.” JA264

(emphasis added).

None of these pre-suit press releases so much as mentioned any

non-monetary relief.’

As set forth in the Companies’ Federal Complaint, the Attor-

ney General’s threatened lawsuit called into question the Com-

panies’ legal rights with respect to past, present, and future

é Thus, the Attorney General has things exactly backwards when

he suggests that the Companies somehow “pars[ed] the State’s claims for

relief and challenge[d] a portion of them. . . to avoid Younger absten-

tion.” (Petition at 17 n.6) The Companies filed their Federal Complaint

first, and the Companies’ Federal Complaint challenged the claims that the

Attorney General had publicly threatened to bring: monetary claims seek-

ing recovery of medical expenses paid. It was the Attorney General's com-

plaint — obviously styled by his contingency fee counsel with an eye to

buttressing his plea for Younger abstention — that for the first time inter-

jected other claims in addition to the monetary claims seeking recovery of

medical expenses paid challenged by the Federal Complaint.

sales of their products in Connecticut and necessarily affected

their businesses on a going-forward basis. RA 17-18 (Com-

plaint 148). Accordingly, as the Second Circuit observed, on

June 28, 1996, the Companies brought this action in federal

court seeking to vindicate their rights under the federal con-

stitution and federal statutes with respect to “ ‘[t}he [t]hreat-

ened. . . impos[ition] upon [the Companies] on a retroactive

basis massive costs of the Medicaid program that Connecticut

has voluntarily chosen to establish, irrespective of traditional

principles of law governing the rights and duties of [the Com-

panies] with respect to any actual Medicaid recipient,’ ” and to

“resolve questions about the consequences of their continuing

to do business in Connecticut.” 123 F.3d at 104 (quoting Fed-

eral Complaint); see RA 6, 17-18 (Complaint 94 16, 48).°

Three weeks after the Companies filed their Complaint, on

July 18, 1996, the Attorney General carried through on his

threats, filing a lawsuit in state court seeking (inter alia) an

“award[ } [of] actual damages and compensation to the State of

Connecticut for past and future damages, including but not lim-

ited to health care expenditures.” PA 127-132 (State Complaint

Prayer for Relief, 911A, C-G). The Attorney General’s state

court complaint seeks to impose the massive retroactive and

prospective health care cost liability which the Companies had

previously challenged on federal constitutional grounds in this

federal action.

In addition, the Attorney General added to his state court

complaint purported “enforcement” claims seeking injunctive

and other relief, claims which the Companies’ federal action

had not addressed. As the Attorney General conceded in his

brief to the Second Circuit below, these aspects of his lawsuit

which he claimed to be “sovereign [in] nature” are “uncon-

nected with the State’s . . . claim for recovery of its Medicaid

payments” — i.é., the only claim challenged by the federal

lawsuit. Atty. Gen. 2d Cir. brief at 25-26. See also Petition at

3

The Companies’ federal Constitutional claims are asserted, inter

alia, under both 42 U.S.C. § 1983 and the federal Declaratory Judgments

Act, 28 U.S.C. § 2201 et seg. See RA 1-2, 17-29.

6

14-15 (“The State’s legal claims. . . are independent of one

another and do not rise or fall together.”) (emphasis added).

Despite the inclusion of certain non-monetary claims in his

state court suit, the Attorney General's statements at his press

conference held the day his suit was filed made clear that his

“primary purpose” in bringing the suit was to seek to obtain a

massive monetary recovery from the Companies, stating that

the suit was “unprecedented, not only in the amount of money

it is seeking to recover, but in the level of public interest in

winning damages from the tobacco companies.” JA253-54,

JA257 (emphasis added). A news article reporting on that press

conference stated that the suit sought $1 billion in damages and

was “the largest civil lawsuit ever brought by the state of Con-

necticut.” JA253.

Four days after filing his lawsuit in state court, the Attorney

General moved to dismiss the Companies’ Federal Complaint

in this action, arguing that — by virtue of his having thereafter

filed the threatened lawsuit in state court — the District Court

was thereupon required to dismiss the Companies’ Federal

Complaint under the Younger abstention doctrine.

While the Petition asserts that the Companies “took [no]

action in federal court thereafter to pursue their claims” (Peti-

tion at 3), the only reason why the Companies’ federal lawsuit

has not progressed beyond the complaint stage is that there has

been no answer and, but three weeks after the Companies filed

their Complaint, the Attorney General moved to dismiss it on

Younger abstention grounds. Until the Attorney General's

motion was resolved, the Companies could not proceed to

move for summary judgment on their preemption claims

(which the Companies had planned to do). Accordingly, the

fact that the Companies’ lawsuit has not progressed beyond the

complaint stage is not due to some litigation strategy of

the Companies, but rather is due to the litigation strategy of the

Attorney General.‘

Even if it were somehow applicable (and the Second Circuit

held that it is nor), Younger abstention could have been waived by the

State. See Morales v. Trans World Airlines, 504 U.S. 374, 381 n.1 (1992).

(footnote continued)

On December 23, 1996, the District Court (without oral argu-

ment or a hearing) dismissed the Companies’ Complaint on

Younger abstention grounds. PA 14-23. The District Court’s

decision was contrary to the decision just one month earlier in

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

(D. Mass. 1996), which held that Younger abstention was not

applicable to the substantially identical federal lawsuit filed by

the Companies against the Attorney General of Massachusetts.

The Companies appealed the Connecticut District Court’s

decision to the United States Court of Appeals for the Second

Circuit, which unanimously reversed. Philip Morris, Inc. v.

Blumenthal, 123 F.3d 103 (2d Cir. 1997). The Second Circuit

began its analysis by noting the limited scope of the Compa-

nies’ Federal Complaint:

The Tobacco Companies challenged on constitutional

grounds aspects of the relief that the state intended to pur-

sue. In particular, they challenged the recovery of Medi-

caid 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 Connecticut during the

pendency of the threatened suit.

* * &

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 smok-

ing-related illnesses. (/d. at 104-06 (emphasis added).)

Thus, the Attorney General could have chosen to litigate the Companies’

constitutional claims on their merits in the federal courts. Plainly, the

Attorney General hopes to avoid federal court scrutiny of his threatened

imposition upon the Companies of Connecticut's health care costs.

Similarly, while the Attorney General seeks to buttress his Younger

abstention argument by observing that the Companies did not seek a pre-

liminary injunction in their lawsuit (Petition at 3), it is difficult to see how

the fact that the Companies sought /ess interference with the state pro-

ceedings can somehow render Younger more applicable, and the Attorney

General cites no authorities in support of such an illogical proposition.

While the Attorney General argued below (and assumes in his

Petition) that the Companies’ Federal Complaint should instead

be construed as seeking more “sweeping” relief (see Petition at

17 n.6), the Second Circuit held that “read in context” the

Complaint could not be so broadly construed. 123 F.3d at 106

n.2.

Having properly started by determining the scope of the

Companies’ Federal Complaint, the Second Circuit went on to

“consider the underlying nature of the state proceeding on

which the federal lawsuit would impinge.” Id. at 106 (empha-

sis added). The Court concluded that “the federal action [does

not} implicate[ ] an important state interest within the meaning

of Younger,” id. at 105-06 (emphasis added), applying the

“generic proceeding” test set forth in New Orleans Pub. Serv.,

Inc. v. Council of New Orleans, 491 U.S. 350, 365 (1989)

(“NOPSI”). In so holding, the Court examined the generic

nature of only those aspects of the state lawsuit with which the

Federal Complaint would interfere, and concluded that such

claims are “more accurately classified as a subrogation action

grounded in tort,” which “is not a generic proceeding of great

importance to the state.” 123 F.3d at 106.

Accordingly, the Second Circuit unanimously held that

Younger abstention did not apply, reversed the District Court’s

decision and remanded the action to the District Court. The

Second Circuit added that “[u]pon remand, the district court, in

its discretion, may consider whether abstention is appropriate

under the Pullman doctrine.” /d. at 107.

The Attorney General filed a petition before the Second

Circuit seeking panel rehearing or rehearing en banc, but that

petition was denied with no judge of the Second Circuit having

voted for panel rehearing or en banc review.°

5

At the request of the Attorney General, the Second Circuit

stayed issuance of its mandate pending resolution by this Court of the

Attorney General's Petition for Certiorari. Accordingly, no further pro-

ceedings in the District Court have yet taken place, and the District Court

has yet to consider whether Pullman abstention might be applicable to

some or all of plaintiffs’ claims.

oo

Se eee

SS ee ee ee Ee ee Se Ts

9

REASONS FOR DENYING THE WRIT

A. This Case Does Not Present the Questions that Peti-

tioner Contends It Presents

This case does not merit certiorari review for several rea-

sons. First, and most fundamentally, this case simply does not

present the questions that Petitioner contends it presents.

According to Petitioner, this case raises various issues con-

cerning the extent to which a federal court can recharacterize

or reject the basis of a State’s state court pleading in deter-

mining whether Younger abstention applies. However, the Peti-

tion misapprehends and mischaracterizes the decision by the

Second Circuit. The Second Circuit did not, as Petitioner

asserts in his Questions Presented, “disregard,” “recharacter-

ize,” or “reject the basis of” the State’s complaint (see Petition,

Questions Presented Nos. 1-4). Rather, what the Second Circuit

did was to analyze the scope of the Companies’ Federal Com-

plaint, and to determine whether the aspects of the State law-

suit with which the Federal Complaint would interfere —

namely, the State’s attempt to obtain a monetary recovery in

favor of itself of medical expenses paid — implicated an

important state interest for Younger purposes.

Petitioner’s misunderstanding of the Second Circuit's deci-

sion is illustrated at page 11 of the Petition, where Petitioner

assumes the Second Circuit’s decision contains a typographi-

cal error when the Second Circuit states: “we do not find that

the federal [sic] action implicates an important state interest

within the meaning of Younger.” Petition at 11 (emphasis

added) (quoting 123 F.3d at 105). The word “federal” in that

quote is not a typographical error: rather, it reflects the Second

Circuit’s assessment that the scope of the Companies’ Federal

Complaint was limited to enjoining the State from imposing

monetary liability upon the Companies in favor of itself on

account of medical expenses paid. The Second Circuit did not

“disregard,” “recharacterize” or “reject” the other aspects of

the State’s lawsuit; rather, it simply analyzed the Companies’

Federal Complaint, and correctly observed that it does not

10

interfere with the nonmonetary alleged “enforcement” aspects

of the State’s lawsuit. 123 F.3d at 105-06 & n.2.°

While Petitioner contends in a footnote that the Second Cir-

cuit’s interpretation of the scope of the Companies’ Federal

Complaint is wrong (Petition at 17, n.6), and that the Compa-

nies’ Complaint should instead be construed as being “much

more sweeping,” the Petitioner has not asked this Court to

review the Second Circuit’s interpretation of the Companies’

Federal Complaint, and the interpretation by the Second Circuit

of the Companies’ Federal Complaint hardly warrants certio-

rari review by this Court. See Philip Morris, Inc. v. Blumen-

thal, 123 F.3d at 106 n.2 (2d Cir. 1997).

Accordingly, this case simply does not present the issues

Petitioner contends it presents, and therefore this case is an

inappropriate vehicle to consider such questions.

B. Petitioner Has Failed to Show that the Court of

Appeals Rendered a Decision in Conflict with Any

Decision of this Court or Other Court of Appeals

1. No Conflict with Any Decision of Other Court of

Appeals

Petitioner does not contend — nor could he — that the deci-

sion of the Second Circuit is in conflict with any decision by

any other Court of Appeals. Quite to the contrary, by focusing

on the scope of the Companies’ Federal Complaint, and seek-

ing to determine whether the Federal Complaint would inter-

fere with important state interests, the Second Circuit's

° Notably, in his Petition for Panel Rehearing or Rehearing en

banc submitted to the Second Circuit, the Attorney General did not contend

that the word “federal” in the passage of the Second Circuit opinion quoted

in the Petition (at 11) reflected a typographical error. Petition for Rehear-

ing p. 5 (quoting same language but without noting or arguing-that this lan-

guage contained typographical error). If the Attorney General believed that

the Second Circuit’s opinion contained a typographical error, it was incum-

bent upon him to raise that in his Petition for Rehearing. The Attorney

General's failure to do so only highlights the presumptuousness of his

incorrect assumption that the use of the word “federal” by the Second Cir-

cuit was a typographical error.

een es SE

11

decision is consistent with the decisions of the other Circuits.

See Gwynedd Properties, Inc. v. Lower Gwynedd Township,

970 F.2d 1195, 1202-03 (3d Cir. 1992) (“the second prong of

the Younger test has not been met as the federal action does not

interfere with state proceedings implicating important state

interests”) (emphasis added); AFSCME vy. Tristano, 898 F.2d

1302, 1305 (7th Cir. 1990) (same); Planned Parenthood

League of Massachusetts v. Bellotti, 868 F.2d 459, 467 (1st Cir.

1989) (same); /nternational Longshoremen’s Ass'n v. The

Waterfront Commission of New York Harbor, 495 F. Supp.

1101, 1111 (S.D.N.Y. 1980) (same), aff'd in part and rev'd in

part on other grounds, 642 F.2d 666 (2d Cir.), cert. denied, 454

U.S. 966 (1981); Philip Morris, Inc. v. Harshbarger, 946 F.

Supp. 1067, 1076-78 (D. Mass. 1996) (same).’

These decisions in turn reflect this Court’s teaching that the

fundamental touchstone of Younger abstention is the avoidance

of federal court interference with vital state interests. See Mid-

dlesex County Ethics Comm. v. Garden State Bar Ass'n, 457

U.S. 423, 434-35 & n.12 (1982) (“the salient fact” for Younger

abstention “is whether federal-court interference would unduly

interfere” with important state interest; state must have impor-

tant interest “in the pending state judicial proceedings and in

the federal case”) (emphasis added); Quackenbush v. Allstate

Ins. Co., 116 S. Ct. 1712, 1721 (1996) (under Younger, “federal

courts have the power to refrain from hearing cases that would

interfere with a pending state criminal proceeding or with cer-

tain types of state civil proceedings”) (emphasis added). Since

Younger abstention by definition thus cannot be predicated

upon aspects of the Attorney General’s state lawsuit with which

the Federal Complaint would not interfere, the Second Circuit

’ Recently, a District Court in Alaska — albeit acknowledging

that all other decisions had reached a contrary conclusion — applied

Younger abstention to a complaint filed by the tobacco companies against

the Alaska Attorney General. Philip Morris, Inc. v. Botelho, No. A97-

0003-CV (HRH) (D. Alaska Apr. 15, 1998). The Companies have appealed

that decision to the Ninth Circuit. Should the Ninth Circuit affirm the Dis-

trict of Alaska’s decision, there may then be a division among the Circuits

that could warrant review by this Court. Such a division among the Cir-

cuits, however, has not developed.

12

properly focused on those aspects of the state proceeding with

which the Federal Complaint does seek to interfere — i.e.,

claims seeking monetary recovery for medical expenses paid.*

Petitioner also contends that the Second Circuit “reject[ed]

the basis of” his Complaint, because the common law Medicaid

recovery claims asserted by the State are not subrogation

claims, but rather purport to “seek damages for direct harm to

the State caused by the tobacco companies’ conduct.” Petition

at 13. However, contrary to Petitioner’s assertion, the Second

Circuit did not “decide state law questions” (Petition at 11, 14)

or rule that the State’s Medicaid recovery claims were subro-

gation claims, but rather ruled that the generic nature of such

claims “is more accurately classified as a subrogation action

grounded in tort.” Philip Morris, Inc. v. Blumenthal, 123 F.3d

at 106 (emphasis added). The Second Circuit elaborated: “This

action, like a subrogation action, primarily concerns the appor-

tionment of loss based upon theories of tort liability — who

should be responsible for paying for the injuries suffered by

those who contracted tobacco-related illnesses.” 123 F.3d at

107 (emphasis added). Accordingly, the Second Circuit con-

cluded, Younger abstention did not apply.’

. Thus, the Attorney General’s argument that Younger abstention

is warranted because his state court complaint seeks certain non-monetary

relief that is similar to various elements of the national Proposed Reso- .

lution dated June 20, 1997 signed by the Companies and certain attorneys

general (including Petitioner) is without merit. The Attorney General's

argument ignores that, as the Second Circuit found, the Companies’ Fed-

eral Complaint simply does not seek to interfere with any such non-mon-

etary claims. In any event, the fact that the State’s lawsuit covers an area

in which the federal government has extensively regulated (i.e., the adver-

tising and promotion of cigarettes, see, e.g., 15 U.S.C. § 1331 et seq.) mil-

itates against, rather than in favor of, Younger abstention. See Ayers v.

Philadelphia Housing Authority, 908 F.2d 1184, 1186, 1195 n.21 (3d Cir.

1990) (Younger inapplicable to federal action challenging housing author-

ity’s state court eviction proceeding which related to housing program sub-

ject to “detailed federal regulation”; “whatever the state’s interest may be

in regulating proceedings which result in removal of citizens from their

homes, it cannot supersede the relevant federal interests in governing the

expenditure of federal funds for. . . HUD housing programs.”).

4

In his principal Second Circuit brief and again in his petition

seeking panel rehearing or rehearing en banc, the Attorney General repeat-

ao nie

13

In so holding, the Second Circuit came to the same conclu-

sion as did the District of Massachusetts with respect to the vir-

tually identical federal complaint filed by the tobacco

companies against the Massachusetts Attorney General. The

Massachusetts District Court likewise held that the generic

nature of Massachusetts’ claims against the tobacco companies

seeking monetary recovery for medical expenses paid did not

implicate important state interests, reasoning that:

Under both federal and state statutes, Massachusetts is

required to pursue liable third parties for amounts paid on

behalf of Medicaid beneficiaries. In suing the cigarette

manufacturers for the cost of treating diseases caused by

smoking, Massachusetts is seeking a remedy that is clas-

sically in the nature of subrogation. (Philip Morris, Inc.

v. Harshbarger, 946 F. Supp. 1067, 1077 (D. Mass. 1996)

(emphasis added). )'°

edly pointed out that his state court complaint does not plead subrogation

claims, but rather “seeks damages for direct harm to the State caused by

the tobacco companies’ conduct.” Atty. Gen. Pet. Reh’g at 7 (emphasis in

original); see also, e.g., Atty. Gen. 2d Cir. brief at 30 (“Connecticut's state

court action is not based. . .onany. . . right of subrogation”). Accord-

ingly, the Attorney General’s argument that the Second Circuit was under

a “misunderstanding” as to his claims (e.g., Petition at 15) — apart from

being totally belied by the language of the Second Circuit's decision — is

totally fallacious.

se Petitioner's attempt to distinguish Harshbarger from the case at

bar (Petition at 14, n.5), echoed in the Amicus brief (at pp. 6-7. n.6), is

without merit. In the first place, Petitioner incorrectly asserts that the

Massachusetts District Court described the Massachusetts action “as

merely ‘a suit for money damages.’ ” Petition at 14, n.5, Quite to the con-

trary, the Massachusetts District Court expressly recognized that the

Massachusetts Complaint sought “both monetary damages and injunctive

relief.” Massachusetts v. Philip Morris, Inc., 942 F. Supp. 690, 692 (D.

Mass. 1996) (emphasis added). And in the oral argument before the

Massachusetts District Court, counsel for the Massachusetts Attorney Gen-

eral emphasized that Massachusetts was not only seeking a monetary

recovery for medical expenses paid, but was also seeking “four types of

injunctive relief” (the same types of injunctive relief that Connecticut

seeks) and was purporting to protect the “vital interest in the health and

safety of Massachusetts consumers.” JA667-68.

Moreover, just one week after oral argument on the Massachusetts

Younger abstention motion (and over three months before the Massa-

14

Accord City and County of San Francisco vy. Philip Morris,

Inc., 957 F. Supp. 1130, 1135 (N.D. Cal. 1997) (Court, in

upholding the retention of contingency fee counsel by the City

and County of San Francisco in its health care cost recovery

suit against the Companies, stated that" jlaiatifte role in this

suit is that of a tort victim, rather than a sovereign.”)

2. No Conflict with Any Decision of this Court

Likewise, the Second Circuit’s decision does not conflict in

any way with the decisions of this Court. Petitioner's con-

tention that the Second Circuit only “pa[id] lip service” (Peti-

tion at 12) to the “generic proceedings” standard set forth by

this Court in NOPSI v. Council of New Orleans, 491 U.S. 350,

365 (1989), is totally unsupported and is belied by the Second

Circuit’s decision. As this Court stated in NOPS/, “when we

inquire into the substantiality of the State’s interest. . . we do

not look narrowly to its interest in the outcome of the particular

case. . . . In Younger, for example, we did not consult Cali-

fornia’s interest in prohibiting John Harris from distributing

handbills.” 491 U.S. at 365.

It is clear that the Second Circuit followed the “generic pro-

ceedings” standard set forth in NOPSI. See 123 F.3d at 106. As

the Second Circuit stated: “ ‘[W]Je 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

chusetts District Court’s decision), Massachusetts amended its complaint

to add its Consumer Protection Act claim. If the simple mechanism of

adding a Consumer Protection Act claim were even arguably the “magic

bullet” of Younger abstention that the Attorney General here claims (and

that the Massachusetts Attorney General claims in his Amicus brief), one

might have expected the Massachusetts Attorney General to have sub-

mitted his amended complaint to the Massachusetts District Court in the

three months that passed after his amendment of his complaint until the

District Court rendered its decision. Yet he did not do so.

Finally, and even more fundamentally, the Attorney General's attempt

to distinguish Harshbarger totally ignores that the federal complaints filed

by the Companies in Massachusetts and Connecticut are substantially the

same and, as the Second Circuit recognized, seek only to interfere with

claims for a monetary recovery of medical expenses paid.

15

State’. . . . In order to ascertain the “generic proceeding’

involved. . . [w]e must consider the underlying nature of the

State proceeding on which the federal lawsuit would impinge.”

Id. (citing NOPSI, 491 U.S. at 365.). Thus, the Second Circuit

looked not to the fact that the State’s claims are asserted

against tobacco companies, but rather looked to the generic

nature of the claims with which the federal complaint would

interfere — claims seeking a monetary recovery of medical

expenses paid — and properly determined that such claims do

not implicate important state interests, but rather “primarily

concern[ } the appor..onment of loss based upon theories of tort

liability — who should be responsible for paying for the

injuries suffered by those who contracted tobacco-related ill-

nesses.” Philip Morris, Inc. v. Blumenthal, 123 F.3d at 107.

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

1077 (D. Mass. 1996) (“The question is whether [the] interest

[in] recouping from liable third parties money paid to Medicaid

beneficiaries . . . is within the zone of ‘vital state interests’ to

which the Younger doctrine gives its special recognition”).

In concluding that monetary claims seeking recovery of med-

ical expenses paid do not implicate important state interests,

the Second Circuit was unquestionably correct. Many private

parties have also brought claims for recovery of medical

expenses paid — insurance companies, health care funds, and

others. Claims to recover medical expenses paid do not become

transformed into claims which implicate important state inter-

ests SO as to warrant invocation of Younger abstention and abdi-

cation of federal jurisdiction over federal claims simply

because the State is the plaintiff suing to recover money for

itself. As the Second Circuit noted:

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 violations (as the state seeks to do in the instant

action) and, in its discretion, the court may also award the

private party punitive damages and equitable relief. Sim-

16

ilarly, 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 entitled to recover treble damages,

Connecticut General Statutes § 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 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. (123 F.3d at 106-07.)

Accord, e.g., Cate v. Oldham, 707 F.2d 1176, 1183 (11th Cir.

1983) (“Application of the Younger doctrine to ongoing state

civil proceedings has been limited to those civil actions in aid

of criminal jurisdiction or involving enforcement-type pro-

ceedings in which vital interests of the state qua state are

involved”; Younger abstention did not apply because “(t]he

state and the state official as plaintiffs in the [state court] action

serve no function different from that of private plaintiffs”);

Mobil Oil Corp. v. City of Long Beach, 772 F.2d 534, 542 (9th

Cir. 1985) (Younger abstention inapplicable because “(t]he only

state interest. . . assert[ed] is [a] claim for money damages,

which is clearly insufficient to support dismissal”); see also

Quackenbush v. Allstate Ins. Co., 116 S. Ct. 1712, 1727 (1996)

(refusing to abstain under Burford in favor of damages lawsuit

state official had brought in state court, pronouncing the

“state[’s] interests” in “seeking damages” to be “run-of-the-

mill” rather than important). -

Nor is the Second Circuit’s unanimous decision in any way

inconsistent with this Court’s decision in Trainor v. Hernandez,

431 U.S. 434 (1977). In Trainor, this Court applied Younger

abstention in favor of a state civil enforcement action and

resulting attachment proceeding against a person who had com-

mitted fraud on the state authorities by making false and fraud-

ulent statements in a welfare application. See id. at 436-38.

Trainor does not remotely, as the Attorney General contends,

mandate Younger abstention when a state is seeking to recover

money for one of its “public assistance” programs.

17

As the Second Circuit recognized, this Court’s rationale for

invoking Younger abstention in the Trainor case was that the

State was seeking “ ‘to safeguard[ ] the fiscal integrity of [its

public assistance] programs’ ” against a person who had “fraud-

ulently conceaied assets when applying for welfare benefits.”

Philip Morris, Inc. v. Blumenthal, 123 F.3d at 107 (quoting

Trainor, 431 U.S. at 444). Moreover, as the Second Circuit also

recognized, this Court relied heavily upon the fact that “the

State might have elected to pursue . . . a criminal prosecution”

in Trainor, 123 F.3d at 107 (citing Trainor, 431 U.S. at 443-44

(plurality opinion)), and that for Justice Blackmun, who cast

the crucial fifth vote breaking a 4-4 tie, the fact that “the State

had the option of proceeding either civilly or criminally” under

the circumstances was critical. Trainor, 431 U.S. at 449

(Blackmun, J., concurring)."'

As the Second Circuit thus correctly reasoned in distin-

guishing Trainor:

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. There is

no suggestion that any individual who received Medicaid

benefits in relation to a tobacco-related illness was not

entitled to those benefits. The mere fact that conduct

results in expense to a state program is not enough to

bring an action to terminate that conduct within the scope

of Trainor. Nor can every initiative by a state to improve

fiscal soundness by getting money be deemed a safeguard

of “fiscal integrity.” (123 F.3d at 107.)

The District of Massachusetts reached the same conclusion

in the Harshbarger case:

The Court’s language in Trainor indicates that it did not

mean to extend Younger to cover every kind of state suit

to recover money paid out under public assistance pro-

grams. Both the opinion of the Court, subscribed by four

Here, of course, no criminal statute is even claimed to authorize

the Attorney General’s claims for monetary (or any other) relief.

18

Justices, and Justice Blackmun’s concurrence emphasized

that Illinois was pursuing through civil means interests it

might have chosen to vindicate through a criminal pros-

ecution. Trainor, 431 U.S. at 444, 449-50 (Blackmun, J.,

concurring). In the Court's view, Illinois was acting in its

traditional sovereign role to protect its programs against

fraudulent claims. (946 F. Supp. at 1977).

Thus, the Second Circuit’s decision is not remotely incon-

sistent with this Court’s decision in Trainor.

Nor is the argument presented in the Amicus Curiae brief

filed by the State of Massachusetts (on behalf of itself and

other states) that the Second Circuit’s decision is inconsistent

with decisions of this Court persuasive. The Amicus brief

asserts that “[t]his Court has never held that where a State

brought a judicial proceeding, the state interest was of insuf-

ficient magnitude to justify Younger abstention.” Amicus Brief

at 5. However, this Court has repeatedly rejected the notion

“that every pending proceeding between a State and a federal

plaintiff’ warrants Younger abstention, holding that in civil

cases this is not even “remotely” the case. NOPS/, 491 U.S. at

368; Moore v. Sims, 442 U.S. 415, 423 n.8 (1979).

As the District of Massachusetts recognized in rejecting a

Younger abstention argument with respect to a substantially

identical federal complaint filed by the tobacco companies

against the Massachusetts Attotney General, the position urged

by the Massachusetts Attorney General is contrary to this

Court’s repeated admonitions that Younger abstention applies

“only [in] exceptional circumstances,” and “remains the excep-

tion, not the rule.” NOPSI, 491 U.S. at 359, 368. See also Col-

orado River Water Conservation Dist. v. United States, 424

U.S. 800, 813 (1976); Quackenbush v. Allstate Ins. Co., 116 S.

Ct. 1712, 1720-21 (1996). As the Massachusetts District Court

aptly put it: “To apply the Younger doctrine and abstain in the

present case would go a long way toward reversing that rela-

tionship and making abstention the rule, not the exception.”

Philip Morris, Inc. v. Harshbarger, 946 F. Supp. 1067, 1078

(D. Mass. 1996).

19

Moreover, it is noteworthy that while the Massachusetts

Attorney General has submitted an Amicus Curiae brief in this

case urging Supreme Court review of the Younger abstention

issue, he did not take any steps to appeal to the First Circuit (by

seeking certification or otherwise) the District of Massa-

chusetts’ similar decision rejecting Younger abstention. The

Massachusetts Attorney General’s argument that the Younger

abstention issue merits certiorari review by this Couri rings

hollow in light of his failure even to seek First Circuit

review of the similar decision against him rendered by the

Massachusetts District Court.'?

More generally, the Amicus brief suffers from many of the

same infirmities as does the Petition. Thus, like the Petition,

the Amicus brief mischaracterizes the Second Circuit’s deci-

sion, trumpets aspects of the state lawsuit with which the fed-

eral complaint would not interfere, and fails to come to grips

with the Second Circwit’s determination that the scope of the

Companies’ Federal Complaint is limited to the State’s attempt

to obtain a monetary recovery in favor of itself for medical

expenses paid. See, e.g., Amicus Brief at 4 (“The Court of

Appeal’s [sic] re-casting of the State’s case. . .”); id. at 12

(“the relief requested in the state proceeding goes well beyond

the simple reimbursement of funds to the State, but also

includes injunctive relief”); id. at 6 (“The Court of Appeals

- . . Misinterpret[ed} the State complaint,” which did not assert

“subrogation claims”).

* * *

Accordingly, since the Second Circuit’s decision is not in

conflict with any decision of this Court or other Court of

Appeals, certiorari review is not warranted.

12

The incongruity in the Massachusetts Attorney General’s posi-

tions cannot be explained by the fact that, as discussed in Section C below,

the Massachusetts District Court applied Pullman abstention to Stay the

Companies’ federal lawsuit. Here, the Second Circuit has likewise

expressly instructed that “[u]pon remand, the district court, in its discre-

tion, may consider whether abstention is appropriate under the Pullman

doctrine.” 123 F.3d 107.

20

C. This Case Would in Any Event Be an Inappropriate

Vehicle for Review of Any Issues Petitioner Contends

It Presents Because the Second Circuit Has Remanded

for Consideration of Pullman Abstention

The Petition fails to mention that the Second Circuit

remanded to the District Court with the instruction that “[u]pon

remand, the district court, in its discretion, may consider

whether abstention is appropriate under the Pullman doctrine.”

123 F.3d 107. Thus, it is possible that, upon remand, the Dis-

trict Court will nevertheless determine to abstain as to some or

all of plaintiffs’ federal claims under the Pullman abstention

doctrine. In the similar case filed by the Companies against the

Massachusetts Attorney General, the Massachusetts District

Court determined that Pullman abstention was applicable to all

of the Companies’ claims. Philip Morris, Inc. v. Harshbarger,

946 F. Supp. 1067, 1078-79 (D. Mass. 1996).

Accordingly, inasmuch as the District Court has yet to con-

sider whether abstention may nonetheless be appropriate under

the Pullman doctrine, the procedural posture of this case in any

event makes it inappropriate for review of the Second Circuit’s

determination that Younger abstention did not apply.

D. The Petition Mischaracterizes the Record Below

Finally, the Petition significantly mischaracterizes the record

below. Thus, Petitioner asserts that “[t]he only evidence of

record” in the courts below as to whether the Companies’ Fed-

eral Complaint implicated important state interests was “the

State of Connecticut’s state court complaint.” Petition at 15.

See also Amicus Brief at 10. Quite to the contrary, however,

defendants offered ample evidence below — which went

entirely unrebutted — showing that the aspect of the state’s suit

with which the Companies’ Federal Complaint seeks to inter-

fere —- monetary recovery for medical expenses paid — does

not implicate important state interests sufficient to trigger

Younger abstention.

As noted above (pp. 3-4), in his pre-suit press statements the

Attorney General himself presented his lawsuit as one only

reenact

21

seeking to recover money, arguing that Connecticut residents

Should support his lawsuit because it may produce a huge mon-

etary recovery for their own benefit. JA260-65. None of his

pre-suit press releases even mentioned non-monetary relief. /d.

Moreover, in his July 18, 1996 press conference announcing

the filing of his lawsuit, the Attorney General continued to

make clear that the centerpoint of his suit was to get money

from “Big Tobacco,” stating that the suit was “unprecedented,

not only in the amount of money it is seeking to recover, but in

the level of public interest in winning damages from the tobacco

companies.” JA253-54 (emphasis added). A news article report-

ing on that press conference stated that the suit sought $1 billion

in damages and was “the largest civil lawsuit ever brought by

the State of Connecticut.” JA253.

As shown by the Companies below, the materials distributed

by the Attorney General at his July 1996 press conference

announcing his lawsuit were even more blunt:

° Under the heading “What is the State of Connecti-

cut Seeking in this Lawsuit?,” the Attorney General

stated: “The State of Connecticut is seeking to

recover the more than $100 million paid each year

by the state through the Medicaid Program and

other taxpayer-funded health programs to treat

tobacco-related illnesses.” JA256 (emphasis added).

° Under the heading “If the Suit is Successful, How

Will Taxpayers Benefit?,” the Attorney General

stated: “A primary purpose of the suit is recovery of

Medicaid funds spent by the State of Connecticut.

These Medicaid funds come from tax revenues. If

the case is successful, it could result in lower health

care costs for all Connecticut taxpayers.” JA257

(emphasis added).

° Under the heading “Why Should Citizens Support

This Lawsuit?,” the Attorney General stated: “The

aim of this lawsuit is to make the tobacco industry

pay for the damages it has caused. Any damage

22

awards recovered in this suit will benefit state taxpayers.”

JA258 (emphasis added).

Indeed, the Attorney General has gone so far as to sign on

private law firms to prosecute his lawsuit on a contingency-fee

basis. JA303-06. The Attorney General’s contingency-fee

agreement with those lawyers, which was also part of the

record below, makes clear that, absent an outside source of fees

(via a court order or legislative procurement), the “compen-

sation and reimbursement [due the lawyers]. . . is contingent

upon a monetary recovery being obtained.” JA304-05 (empha-

sis added).

Beyond this, there are other reasons to be skeptical of the

Attorney General’s purely conclusory assertion that the mon-

etary claims in his state court lawsuit promote the central

sovereign functions of the state. As noted above, prior to insti-

tuting his lawsuit, the Attorney General twice sought direct

authority to bring an action against tobacco companies for

monetary recovery of medical expenses paid from the Con-

necticut General Assembly, to the point of personally giving

testimony in support of each of two proposed bills. JA266-302.

The General Assembly’s refusal to enact those bills is contrary

to the Attorney General’s self-serving “important state inter-

ests” proclamations. See generally Tileston v. Ullman, 26 A.2d

582, 587 (Conn. 1942); Blue Cross and Blue Shield of Con-

necticut, Inc. v. Mike, 439 A.2d 1026, 1031 (Conn. 1981).

Moreover, as is set forth in the Companies’ Federal Com-

plaint, for more than 30 years, Connecticut has been making

payments under the Medicaid program without so much as

seeking to recoup a single payment from any of the Companies;

for an even longer period still, Connecticut has officially sanc-

tioned and chosen to collect enormous revenue benefits from

the tobacco industry — a minimum of $2 billion in tax col-

lection benefits from cigarette sales since the State’s partici-

pation in Medicaid began. See RA 7 (Complaint 419); JA213.

Further, as the Companies also demonstrated below, the State

has chosen to invest and continues to hold approximately $100

million of its pension fund investments in tobacco company

FSBO eT COSA NRE IIE OTR

23

securities, and the State itself has long caused tobacco products

to be offered for sale in many office buildings, restaurants and

other state facilities throughout the state. JA307-14, JA331,

JA360, JA206-07, JA201-02."3

The Attorney General failed to rebut any of this evidence. Nor

did the Attorney General present any evidence showing how the

“state interests” he purports to assert in his lawsuit — while not

being substantial enough (a) to convince the General Assembly

to adopt either of the bills that would have purported to authorize

his claims against the Companies seeking monetary recovery of

medical expenses paid; (b) to motivate the State to file such a

lawsuit for a quarter-century; (c) to cause the State now to end its

association with the tobacco industry; (d) to cause the State to

divest its substantial tobacco stock investments; or even (e) to

induce the State now to stop Causing cigarettes to be sold and dis-

played for sale at its own facilities — are nonetheless somehow

important state interests sufficient to require Younger abstention

and to mandate the abdication of jurisdiction over the Compa-

nies’ federal action seeking to enjoin the State’s attempt to obtain

a monetary recovery for itself on account of medical expenses

paid.

Thus, the Petition totally mischaracterizes the record below,

and certiorari review by this Court is not merited for this fur-

ther reason as well.

13

It is well settled that “[i]n deciding whether abstention is appro-

priate. . . , the Court must. . . accept the truth of all well-pleaded alle-

gations [in the federal complaint] and make all possible inferences in favor

of the [federal] plaintiff.” Strasen v. Strasen, 897 F. Supp. 1179, 1184 (E.D.

Wis. 1995). See also, e.g., DeLoreto v. Ment, 944 F. Supp. 1023, 1027 (D.

Conn. 1996).

24

CONCLUSION

For the foregoing reasons, the petition for a writ of certiorari

should be denied.

Of Counsel:

Ben A. Solnit

Respectfully submitted,

Attorneys for Respondent

Philip Morris Incorporated

Peter C. Hein*

WACHTELL, LIPTON, ROSEN

& KATZ

51 West 52nd Street

New York, New York 10019

(212) 403-1000

TYLER COOPER & ALCORN

205 Church Street

P.O. Box 1936

New Haven, Connecticut 06509-1910

(203) 784-8200

* Counsel of Record

Attorneys for Respondent

R.J. Reynolds Tobacco Company

Donald B. Ayer*

JONES, DAY, REAVIS & POGUE

Metropolitan Square

1450 G Street, N.W., Suite 700

Washington, D.C. 20005-2088

(202) 879-3939

Of Counsel:

Edward F. Hennessey, III

David Thomas Ryan

ROBINSON & COLE

One Commercial Plaza

280 Trumbull Street

Hartford, Connecticut 06103-3597

(860) 275-8200

Attorneys for Respondent

Brown & Williamson Tobacco

Corporation

Marjorie Press Lindblom*

KIRKLAND & ELLIS

153 East 53rd Street

New York, New York 10022

(212) 446-4800

Of Counsel:

Francis H. Morrison, III

James H. Rotondo

Day, BERRY & HOWARD

CityPlace I

Hartford, Connecticut 06103

(860) 275-0100

Attorneys for Respondent

Lorillard Tobacco Company

Gene E. Voigts*

SHOOK, HARDY & BACON, LLP

One Kansas City Place

1200 Main Street

Kansas City, Missouri 64105

(816) 474-6550

* Counsel of Record

Of Counsel:

James R. Fogarty

Andrew P. Nemiroff

Lawrence F. Reilly

EPSTEIN FOGARTY

COHEN & SELBY LLC

88 Field Point Road

P.O. Box 2508

Greenwich, Connecticut 06836-2508

(203) 661-1000

APPENDIX

RA-1

UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

Civil Action No.: 396CV01221

June 28, 1996

PHILIP MORRIS INCORPORATED, R.J. REYNOLDS TOBACCO

COMPANY, BROWN & WILLIAMSON TOBACCO CoRPO-

RATION, LORILLARD TOBACCO COMPANY,

Plaintiffs,

—vs.—

RICHARD BLUMENTHAL,

ATTORNEY GENERAL OF CONNECTICUT,

Defendant.

COMPLAINT

Plaintiffs, by their undersigned attorneys, allege upon

knowledge as to themselves, and otherwise upon information

and belief, as follows:

Nature of the Action

1. By this action, plaintiffs seek injunctive relief as well as

a declaration pursuant to the federal Declaratory Judgments

Act, 28 U.S.C. §§ 2201 et seg., that an actual controversy

exists between the plaintiffs and defendant and that the

RA-2

lawsuit that has been imminently threatened by defendant

against plaintiffs, purportedly to recover certain Medicaid

payments made by the State of Connecticut, would violate

plaintiffs’ rights under the United States Constitution and fed-

eral statutes.

2. This action seeks to prevent defendant from singling out

a category of out-of-state manufacturers and imposing upon

them a retroactive, unprecedented, and devastating financial

burden in an effort to significantly impede the channels of

interstate commerce to a lawful product — cigarettes — at the

expense of plaintiffs’ federal constitutional and statutory

rights.

Jurisdiction and Venue

3. This Court has jurisdiction over this action pursuant to

28 U.S.C. § 1331, 28 U.S.C. § 1343, and 28 U.S.C. § 1367.

Venue is proper in this District under 28 U.S.C. § 1391(b).

Parties

4. Plaintiff Philip Morris Incorporated, a manufacturer of

cigarettes, is a Virginia corporation whose principal place of

business is 120 Park Avenue, New York, New York 10017.

5. Plaintiff R.J. Reynolds Tobacco Company, a manufac-

turer of cigarettes, is a New Jersey corporation whose

principal place of business is 4th and Main Street, Winston-

Salem, North Carolina 27102.

6. Plaintiff Brown & Williamson Tobacco Corporation, a

manufacturer of cigarettes, is a Delaware corporation whose

principal place of business is 1500 Brown & Williamson

Tower, Louisville, Kentucky 40202.

7. Plaintiff Lorillard Tobacco Company, a manufacturer of

cigarettes, is a Delaware corporation whose principal place of

business is | Park Avenue, New York, New York 10016.

RA-3

8. Defendant Richard Blumenthal is the Attorney General

of Connecticut.

Background

9. For months, defendant has been preparing to bring on

behalf of the State of Connecticut a lawsuit (the “Threatened

Lawsuit”) seeking hundreds of millions of dollars from plain-

tiffs, which are cigarette manufacturing companies that are

incorporated and have their principal place of business out-

side of Connecticut. The theory of the Threatened Lawsuit is

that, under various provisions and/or principles of state law,

plaintiffs should be required — both retroactively and

prospectively —to pay for Medicaid payments that Con-

necticut voluntarily undertook to make to its Medicaid-eli-

gible residents, wholly irrespective of whether plaintiffs

would have any liability under established principles of law

to pay for the medical care of any actual Medicaid recipient.

10. The Threatened Lawsuit would have purported to have

been authorized by a bill which was introduced in the Con-

necticut General Assembly in the 1996 session but failed to

be enacted into law (the “Failed Bill”). The Failed Bill (1996

House Bill 5817) would have provided that:

The state of Connecticut may recover against any man-

ufacturer of tobacco products the full amount of medical

assistance provided by the state of Connecticut. . .

which is attributable to the use of cigarettes or other

tobacco products pursuant to the Title XIX Medicaid

program, and reasonable attorney’s fees and costs. The

State’s rights under this section are independent of any

rights or causes of action of the recipient or applicant.

In an action brought pursuant to this section, the issue of

causation may be proven by epidemiological studies or

Statistical evidence and the contributory negligence,

comparative negligence or assumption of risk of the

applicant or recipient shall not bar recovery nor dimin-

etiater

PAU AD PR Ty SM IO ES TRI Fell BETO, Se

APS SLBA AGLI LET AA ati AITO

2

ie PLE

RA-4

ish the award of damages. The portion of the costs of

medical assistance provided by the state of Connecticut

which are attributable to the manufacturer of tobacco

products shall be presumed to be equivalent to the por-

tion of total sales, in this state, of such product that are

attributable to the manufacturer for the period of time for

which reimbursement is sought. (emphasis added)

The Failed Bill contained the following “Statement of Pur-

pose”: “To authorize the Attorney General to bring an action

against any manufacturer of tobacco products to recover the

costs of medical assistance that is attributabie to the use of

cigarettes or other tobacco products.” (emphasis added)

11. Notwithstanding that the Failed Bill — which on its

face would have purported to “authorize” the Attorney Gen-

eral to bring the Threatened Lawsuit — was not enacted into

law, defendant nonetheless is proceeding with his plan to

bring the Threatened Lawsuit. In his testimony before the

Judiciary Committee concerning the Failed Bill, defendant

proclaimed that the Failed Bill would merely “put in statate

the current state of the common law” (emphasis added).

According to the defendant’s testimony, both the Failed Bill

and the “current state of the common law” (as interpreted by

defendant) (i) “clearly authorize the Attorney General to

bring an action to recoup. . . health care expenses caused by

tobacco products”; (ii) “allow the state to prove causation

between the tobacco product and the disease by statistical evi-

dence or epidemiological studies”; (iii) “prohibit[ ] the

defense of contributory/comparative negligence or assumpton

of risk of the patient by the tobacco company”; and (iv)

“apportion damages among the tobacco industry based on

market share of the tobacco companies.”

12. Defendant will claim in the Threatened Lawsuit that

the State is entitled to recover Medicaid payments from pliin-

tiffs (i) on a retroactive basis, and (ii) without regard to some

or all of the elements of proof that any actual Medicaid re:ip-

ient would be required to establish to recover medical costs

RA-5

from plaintiffs, and some or all of the defenses that plaintiffs

would have against any actual Medicaid recipient. This is

apparent from, among other things, (i) published reports con-

cerning public statements made by defendant regarding the

nature and magnitude of claims that the defendant is planning

to assert in the Threatened Lawsuit (as alleged below at 99 41-

47); (ii) the testimony of the Attorney General before the

Judiciary Committee on the Failed Bill (quoted in part above

at 911); and (iii) the fact that defendant is acting in concert

with Attorneys General of several other states who have

brought similar suits, who have all sought to impose liability

retroactively and without regard to whether any individual

Medicaid recipient would have any claim against any

cigarette manufacturer (as alleged below at 99 14-15).

13. The threatened conduct of defendant violates funda-

mental principles of federal constitutional law. Plaintiffs are

entitled to injunctive relief barring the defendant from bring-

ing, prosecuting, or imposing or enforcing liability pursuant

to the Threatened Lawsuit, as well as a declaration that the

Threatened Lawsuit violates plaintiffs’ federal constitutional

and statutory rights.

14. In the past two years, nine similar lawsuits have

been brought by the Attorneys General of nine other

States: Florida, Mississippi, Minnesota, West Virginia,

Massachusetts, Louisiana, Texas, Maryland, and Washington.

In each of those suits, the Attorneys General have sought to

impose liability retroactively — in the Minnesota case, all the

way back to 1977 — and have taken the position that liability

may be assessed without regard to whether any individual

Medicaid recipient would have any claim against any tobacco

company. With the assistance of the Attorneys General that

have already brought suit and various anti-tobacco groups,

defendant is preparing to bring suit as well. On April 1, 1996,

the Reuters News Service quoted Attorney General Blumen-

thal as saying that he was “very close” to bringing suit. And

on May 2, 1996, the New York Times reported that Connecti-

RA-6

cut had publicly “announced [its] plans yesterday to sue the

tobacco industry.” The New York Times article reported that,

} according to Attorney General Blumenthal, the suit “would

: seek hundreds of millions of dollars in damages.”

15. Defendant, in preparing to bring the Threatened Law-

: suit, is acting in concert with the Attorneys General who have

brought similar suits thus far, anti-tobacco groups, and others.

As was reported by the States News Service on March 25,

1996, defendant attended the spring meeting of the National

Association of Attorneys General to “consult and plot strat-

egy with . . . colleagues who have already filed similar

suits.”

BEM) ED DDE

16. The Threatened Lawsuit violates basic principles of

constitutional law under the United States Constitution. The

Threatened Lawsuit seeks to impose upon plaintiffs on a

retroactive basis massive costs of the Medicaid program that

Connecticut has voiuntarily chosen to establish, irrespective

of traditional principles of law governing the rights and duties

of plaintiffs with respect to any actual Medicaid recipient.

17. Innumerable factors may contribute to the costs of

Medicaid: inefficiency and/or corruption in the state system;

random (and often reckless) individual choices such as driv-

: ing over the speed limit; the pervasiveness of air pollution;

automobiles; handguns; alcohol; unhealthy foods; and so

on. Moreover, myriad business decisions and government

policies that make individuals unable to rise economically

above the Medicaid level contribute substantially to the costs

of Medicaid — for example, low wages, plant closings and job

eliminations that leave employees unable to pay their own

medical bills. Connecticut’s attempt to impose massive costs

upon out-of-state cigarette manufacturers without regard to

pre-established tort law principles and defenses is arbitrary

and violates the United States Constitution.

18. Moreover, notwithstanding the publicly articulated

views of many going back a century or more that smoking

eee mee

RA-7

tobacco is injurious to health, cigarettes have expressly been

sanctioned as an article of interstate commerce; have been

regulated (but not prohibited); and have been utilized as a

revenue-producing vehicle both by the United States Gov-

ernment and the individual states, including Connecticut.

19. Indeed, in 1994 alone, Connecticut generated over

$118 million in revenue from state cigarette taxes, and Con-

necticut has since 1965 (the year the federal Medicaid Act

was enacted and the first year Connecticut chose to partici-

pate in Medicaid) generated over two billion dollars in state

cigarette taxes. Connecticut’s retroactive attempt to shift the

burden of Medicaid costs it has voluntarily undertaken to

make to out-of-state manufacturers of a lawful product that

the state has for many years countenanced, regulated and from

which it has generated enormous revenues through taxation is

unlawful.

20. Congress struck a careful balance in the Federal

Cigarette Labeling and Advertising Act of 1965 and its suc-

cessor, the Public Health Cigarette Smoking Act of 1969,

among (i) recognizing the importance of cigarettes to our

national economy and the economies of tobacco growing and

manufacturing states by facilitating the sale of Cigarettes in

interstate commerce; (ii) providing that a warning label be

placed on each package of cigarettes; and (iii) allowing indi-

vidual customers to exercise their personal freedom of choice

to smoke or not to smoke. Congress mandated that a warning

label be placed on all cigarette packages sold in the United

States, but that cigarette packages so labeled could be sold in

the United States free of all state “requirements or prohibi-

tions” based on smoking and health with respect to, inter alia,

the promotion of cigarettes. In enacting these statutes,

Congress expressly stated as one of its purposes that “com-

merce and the national economy. . . be protected to the max-

imum extent consistent with [the] declared policy” of

“adequately inform[ing] [the public] that cigarette smoking

may be hazardous to health.” 15 U.S.C. § 1331. Subsequently,

Elk CASI OP I MNES ARABI OP arte 208 REET 4

Paar Lat S

RA-8

the Supreme Court has expressly recognized that lawsuits

seeking damages constitute “requirements or prohibitions” by

the states within the meaning of these federal statutes. See

Cipollone v. Liggett Group, Inc., 112 S. Ct. 2608 (1992).

21. The potential impact of the Threatened Lawsuit on

interstate commerce is enormous and far reaching. The

Threatened Lawsuit (like the other similar lawsuits in other

states) seeks unlawfully to significantly impede interstate

commerce in cigarettes. While the individual states could not

constitutionally legislate this result directly, these lawsuits

attempt to shift retroactively massive costs of the Medicaid

program to plaintiffs and arbitrarily to impose on plaintiffs

massive ongoing costs.

22. Even if the provisions of Connecticut Law relied upon

by defendant were construed to apply only prospectively, they

would still (as otherwise interpreted by defendant) constitute

an improper and illegal burden on interstate commerce by

imposing massive ongoing costs upon the plaintiffs. In light

of the inherent mobility of the American population, the

constitutional right to travel, and the ability to purchase

cigarettes in neighboring states, plaintiffs could not insulate

themselves from the draconian liability sought to be imposed

by defendant (or the other states in which Attorneys General

have brought suit).

23. The Threatened Lawsuit, and the provisions of Con-

necticut Law relied upon by defendant as interpreted by him,

violate plaintiffs’ rights under the United States Constitution.

As further set forth below, they constitute an improper and

illegal attempt by the State to burden interstate commerce,

violate plaintiffs’ rights under the Due Process Clause, Equal

Protection Clause, Taking Clause, and plaintiffs’ First

Amendment rights. Moreover, the Threatened Lawsuit and the

provisions of Connecticut Law relied upon by defendant (as

interpreted by him) violate the Supremacy Clause because

they are preempted by and inconsistent with the federal Med-

RA-9

icaid Act and the Public Health Cigarette Smoking Act of

1969.

24. Plaintiffs are entitled to injunctive relief barring the

defendant from prosecuting, imposing or enforcing liability

pursuant to the Threatened Lawsuit. Plaintiffs are also enti-

tled to a declaration that the threatened conduct of defendant

is in violation of plaintiffs’ constitutional rights and federal

Statutory rights, and that the provisions of Connecticut Law

relied upon by defendant, if construed in the manner in which

defendant will claim in the Threatened Lawsuit, are uncon-

stitutional.

The Medicaid Program

25. By virtue of the Threatened Lawsuit, defendant seeks

to recover from plaintiffs payments voluntarily made by Con-

necticut under the program established under Title XIX of the

Social Security Act, commonly known as the Medicaid Act,

42 U.S.C. § 1396 er seq. Under the Medicaid Act, partici-

pating states receive federal financial assistance for admin-

istering a medical treatment program in accordance with the

requirements of the comprehensive federal scheme set forth

in the Medicaid Act and regulations promulgated thereunder.

26. Under the Medicaid Act, no state is obligated to par-

ticipate in the Medicaid program. However, states that choose

to participate in the Medicaid program, and thus who seek to

become eligible for federal funding, must develop a state plan

that conforms with the comprehensive federal requirements.

The state plan must be approved by the United States Depart-

ment of Health and Human Services. 42 U.S.C. §§ 1396a,

1396c. Connecticut has since 1965 chosen to participate in the

federal Medicaid program.

27. The percentage of federal funds available to each state

under the federal Medicaid program varies from state to state

based upon a federal formula that takes into account the per

RA-10

capita income of residents of the state as compared to the

national average. In 1994, the federal government paid 50%

of the funds relating to Connecticut’s participation in the

Medicaid program, and the federal government pays for some

states up to 80% of the funds applicable to their participation.

28. In recognition of the fact that the United States gov-

ernment provides the major source of funding for the Medi-

caid programs throughout the country, the Medicaid Act and

the regulations thereunder create a detailed system for the

recovery of monies paid out under the Medicaid program

where third parties are found to be liable for their payment.

29. Thus, under the Medicaid Act and the regulations

thereunder, a state Medicaid plan must provide that each

. recipient assign to a duly designated single state Medicaid

agency his or her rights to payment for medical care from any

third party. See 42 U.S.C. §§ 1396a(a)(45), 1396k; 42 C.F.R.

§§ 433.145-.148. The single state agency, as the assignee of

those rights, must take reasonable measures to determine the

legal liability of third parties to pay for services furnished

under the Medicaid plan to any recipient, and must fulfill the

requirements of the Medicaid Act and regulations with regard

to establishing liability and seeking reimbursement from third

parties. See 42 U.S.C. § 1396a(a)(25), 42 C.F.R. §§ 433.135-

.148.

30. The Medicaid Act and regulations also require that if

a State receives reimbursement of Medicaid payments from a

liable third party, the state must pay the federal government

the applicable federal share of the reimbursement (net of an

incentive payment to the state applicable under the regula-

tions). See 42 U.S.C. § 1396b(d); 42 C.F.R. § 433.140(c); 42

C.F.R. § 433.154.

31. Under the applicable regulations, “[i]f the agency

learns of the existence of a liable third party after a claim is

paid. . . the agency must seek recovery of reimbursement

within 60 days after the end of the month it learns of the exis-

RA-11

tence of the liable third party.” 42 C.F.R. § 433.139(d)(2).

Reimbursement by the state agency “must be sought unless

the agency determines that recovery would not be cost effec-

tive.” 42 C.F.R. § 433.139(d)(3).

32. If the state agency fails to fulfill these or any of the

other requirements with regard to establishing liability and

seeking reimbursement from third parties, it loses its right to

federal financial participation in Medicaid payments. 42

C.F.R. § 433.140(a)(1). Yet, despite this severe consequence

for failing promptly to seek reimbursement from a third party,

and despite widespread and longstanding public allegations

that smoking leads to increased health care costs, the State of

Connecticut has never in the over 30 years since the Medicaid

Act was enacted sought to recover a single Medicaid payment

from a cigarette manufacturer, or to bring any lawsuit similar

to the Threatened Lawsuit against any third party purporting

to act in a capacity “independent” of the rights of actual Med-

icaid recipients. Nor has any such suit ever been authorized

anywhere in the country by the United States Department of

Health and Human Services, the federal agency responsible

for administering the Medicaid Act and regulations.

33. It is plain from the face of the Medicaid Statute and the

applicable regulations — and is confirmed by the actions of

the state and federal agencies for over 30 years in adminis-

tering the Act —that the federal Statutory and regulatory

framework contemplates only suits to recover costs of med-

ical assistance from insurers or other third parties who are

liable to individual Medicaid recipients. For example, there

are detailed federal regulations regarding the establishment of

paternity and recovery against out-of-wedlock fathers, and

express requirements that recipients (among other things)

release their medical records and appear as witnesses in court

if needed. E.g., 42 C.F.R. § 433.147. But nothing in the fed-

eral scheme discusses or remotely authorizes mass suits

against an industry on any theory (much less one whereby the

state could proceed without proof of any elements of an indi-

RA-12

vidual Medicaid recipient’s legal claim and without being

subject to some or all of the defenses applicable to an indi-

vidual Medicaid recipient’s legal claim), or authorizes the

states to single out any particular industry for disparate treat-

ment.

The Connecticut State Medicaid Plan

34. The Connecticut State Medicaid Plan (the “State Plan”)

approved by the United States Department of Health and

Human Services is not on its face inconsistent with the federal

requirements discussed above.

35. Thus, the section of the State Plan entitled “Third Party

Liability” states that “The Medicaid Agency meets all

requirements of: (1) 42 C.F.R. 433.138 and 433.139; (2) 42

C.F.R. 433.145 through 433.148; (3) C.F.R. 433.151 through

433.154; [and] (4) Section 1902(a)(25)(H) and (I) of the Act.”

As discussed above, these sections provide (among other

things) for each Medicaid recipient to assign to the state Med-

icaid agency his or her rights to payment for medical care

from any third party; for the state agency to take reasonable

measures as assignee of those rights to determine the legal

liability of third parties to pay for services furnished under

the Medicaid plan to any Medicaid recipient; for the state

agency to seek recovery of reimbursement within 60 days

after the end of the month it learns of the existence of a liable

third party; and for the state to pay the federal government the

applicable federal share of any monies recovered from third

parties.

36. In addition, an Attachment incorporated by reference

into the Connecticut state plan, in a section titled “Guidelines

Used in Determining Whether to Seek Reimbursement from

Liable Third Parties,” states that the Connecticut State

Agency responsible for administering the Medicaid program

takes action “to recover payments in excess of $500 for

claims associated with accident/casualty situations.” How-

ili ac

PE Oe ae A ee

RA-13

ever, as noted above, in the over 30 years that Connecticut

has participated in Medicaid, and despite the widespread pub-

lic assertions that smoking tobacco is injurious to health, no

claim has ever been asserted by the Connecticut State Agency

against any plaintiff herein seeking recovery for any medical

service provided to any individual that was paid for by

Medicaid.

The Applicable Connecticut Statutory Provisions

37. The Connecticut Statutory provisions governing third

party liability with regard to Medicaid payments likewise are

on their face consistent with the federal requirements dis-

cussed above. Specifically, Conn. Stat. § 17b-265 provides:

In accordance with 42 U.S.C. § 1396k, the department of

social services shall be subrogated to any right of recov-

ery or indemnification which an applicant or recipient of

medical assistance or any legally liable relative has

against a private insurer or other third party, as defined

in 42 C.F.R. 433.136, for the cost of hospitalization,

pharmaceutical services, physician services, nursing ser-

vices and other medical services, not to exceed the

amount expended by the department for such care and

treatment of the applicant or recipient. An applicant or

recipient or legally liable relative, by the act of the

applicant or recipient receiving medical assistance, shall

be deemed to have made a subrogation assignment and

an assignment of claim for benefits to the department.

- . This subsection shall not be construed to affect the

right of an applicant or recipient to maintain an inde-

pendent cause of action against such third party tort-

feasor. (emphasis added)

This provision is consistent with the federally mandated

scheme set forth in 42 U.S.C. §§ 1396a(a)(45) and 1396k and

42 C.F.R. §§ 433.145-.148 whereby each Medicaid recipient

is required to assign his/her rights to the single designated

RA-14

state Medicaid agency, and this state agency is required to act

as assignee of those rights to seek third party reimbursement.

While this section permits an individual Medicaid recipient to

“maintain an independent cause of action” against a third

party, it does not permit the state to maintain an “independent

cause of action” such as the Attorney General has threatened

to bring by virtue of the Threatened Lawsuit, but rather pro-

vides for the duly designated state Medicaid agency to pro-

ceed by virtue of the assignment/subrogation mechanism

mandated by the federal Medicaid Act.

38. Other provisions of Connecticut law likewise make

clear that the assignment/subrogation scheme mandated by

federal law is the mechanism pursuant to which the state is

required to seek to recover Medicaid payments from third par-

ties. Under Conn. Stat. § 17b-260, the Connecticut Medicaid

program is required to be “administer[ed] in accordance with

the requirements” of the federal Medicaid Act. And, under

Conn. Stat. § 17b-264, state statutory provisions (including

the third-party liability/subrogation provision quoted in 437,

supra) are extended to the Connecticut Medicaid program

only if they are not “inconsistent with federal law and

regulations governing Title XIX of the Social Security

Amendments of 1965 [i.e., the federal Medicaid Act and

regulations].”

39. The Connecticut State Medicaid Plan that has been

approved by the United States Department of Health and

Human Services, discussed above in 9] 34-36, likewise is con-

sistent with these federal requirements. Nothing in the State

Plan remotely authorizes a lawsuit by the state “independent”

of any right or cause of action assigned to it by any actual

Medicaid recipient by virtue of the Medicaid Act and the reg-

ulations thereunder. Nor does anything in the State Plan

authorize a lawsuit against a particular industry for Medicaid

payments, or authorize the Attorney General to bring any law-

suit seeking to recover any Medicaid payments.

a

RA-15

40. As noted above (910), despite the publicly-stated

intention of defendant to bring the Threatened Lawsuit. the

Connecticut Legislature has not adopted a proposed bill

which would have at least on its face purported to have autho-

rized the defendant to bring an action against tobacco com-

panies seeking to recover Medicaid moneys, and to assert the

claims that are threatened to be asserted in the Threatened

Lawsuit. Thus, on March 13, 1996, Representative Ellen

Scalettar sponsored a new bill (House Bill No. 5817) in the

Connecticut General Assembly titled “An Act Concerning

Recovery of State Costs for Treatment of Tobacco-Related

Diseases.” The “Statement of Purpose” of the bill was: “To

authorize the Attorney General to bring an action against any

manufacturer of tobacco products to recover the costs of med-

ical assistance that is attributable to the use of cigarettes or

other tobacco products.” (emphasis added) The bill would

have purported to give the state rights “independent of any

rights or causes of action of the recipient or applicant,” and

would have provided that “the issue of causation may be

proven by epidemiological studies or statistical evidence, and

the contributory negligence, comparative negligence or

assumption of risk of the applicant or recipient shall not bar

recovery nor diminish the award of damages.” But, despite

testimony by the Attorney General in Support of the Bill,

House Bill No. 5817 was not enacted into law.

The Threatened Lawsuit by the

Connecticut Attorney General

41. The Connecticut Attorney General has for months been

preparing to file the Threatened Lawsuit against plaintiffs to

recover Medicaid-related payments, purporting to act not sim-

ply as subrogee or assignee of the individual recipients in

conformity with the federal requirements under the Medicaid

Act and the state Statutory provisions incorporating those fed-

eral requirements, but in an “independent” capacity.

RA-16

42. Thus, on March 25, 1996, the Connecticut Law Tribune

reported that defendant was “close to bringing suit against the

tobacco industry to recover state costs for tobacco-related ill-

nesses — if the General Assembly backs the gambit.” This

report stated that defendant had “proposed to the Judiciary

Committee. . . changes in state law [House Bill 5817, dis-

cussed in 99 10-11, 40, above] that would strengthen Con-

necticut’s position in court by blocking the tobacco industry’s

defenses in litigation.” Defendant was quoted as saying that

he was “preparing actively for a lawsuit”, and that such a law-

suit would “probably” not be filed “before the [current leg-

islative] session ends [May 8, 1996] and until we know if the

General Assembly will approve some or all of the measures

we have asked for [in House Bill 5817].”

43. Also on March 25, 1996, the State News Service

reported that “Connecticut could file a lawsuit against the

major tobacco companies within several weeks, seeking mil-

lions in repayment for Medicaid and Medicare expenses for

tobacco-related illnesses.” This report quoted defendant as

saying that it was “morally reprehensible” for taxpayers to

bear the costs of diseases attributable to smoking, and that the

Threatened Lawsuit would seek “to recover for Connecticut

taxpayers” health care costs “borne for years now” attributed

to smoking, which defendant estimated as “$900 million”.

44. On April 1, 1996 the Reuters News Service quoted

defendant as saying “I think we are very close” to filing suit.

45. Although the Failed Bill was not enacted into law,

defendant nevertheless has publicly announced that he still

intends to proceed with the Threatened Lawsuit. Thus, on

May 2, 1996, the New York Times reported that Connecticut

had “announced [its] plans yesterday to sue the tobacco indus-

try.” The New York Times report stated that, according to

defendant, the suit “would seek hundreds of miilions of dol-

lars in damages.”

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RA-17

46. On May 6, 1996, the Connecticut Law Tribune reported

that defendant had “filed notices with newspapers across the

State, including the Connecticut Law Tribune, seeking pro-

posals for law firms to work with his office on the suit” ona

contingency fee basis. The report stated that such proposals

were due to be received by the Attorney General on or before

May 20, and that the Attorney General “hope[d] to file the

suit by late spring or early summer.”

47. Ina May 27, 1996 article in the Connecticut Law Tri-

bune entitled “A Piece of the Action,” it was reported that

defendant had received 14 proposals from law firms seeking

to be hired on a contingency fee basis to bring the Threatened

Lawsuit, and defendant was quoted as saying that he planned

“to make a choice among them. . . some time in June.”

Plaintiffs’ Need for Declaratory and Injunctive Relief

48. Plaintiffs need the declaratory and injunctive relief

sought herein in order to settle and protect their reasonable

investment-backed expectations and economic rights to con-

tinue to manufacture ‘and sell cigarettes in the United States

free from unconstitutional and illegal imposition of liability.

The Threatened Lawsuit and the provisions of Connecticut

Law upon which defendant relies, as interpreted by the defen-

dant, place into question plaintiffs’ liability for past, present

and future sale of their products in interstate commerce and

will (if held to be constitutional) necessarily affect plaintiffs’

business on a going-forward basis. Plaintiffs believe that the

Threatened Lawsuit and the provisions of Connecticut Law

upon which defendant relies as interpreted by defendant are

plainly unconstitutional, but defendant contends to the con-

trary. Plaintiffs are entitled to a declaration on this issue so

that Plaintiffs’ legal rights and any questions about their lia-

bility for past, present and future sales are resolved and so

that they may determine whether the claims in the Threatened

Lawsuit and the provisions of Connecticut Law upon which

RA-18

defendant relies will have any effects on their businesses and,

if necessary, take appropriate actions. It is anticipated that

defendant will bring the Threatened Lawsuit in state court,

and plaintiffs are entitled to have a federal court resolve the

federal constitutional and statutory claims raised herein. In

addition, the Threatened Lawsuit and the provisions of Con-

necticut Law upon which defendant relies, as interpreted by

the defendant, raise the spectre of massive liability. Plaintiffs

are entitled to injunctive relief barring defendant from

prosecuting, imposing or enforcing liability pursuant to the

Threatened Lawsuit.

First Claim for Relief

(Commerce Clause)

49. Plaintiffs repeat and reallege paragraphs | through 48

hereof.

50. The Threatened Lawsuit and the provisions of Con-

necticut Law upon which defendant relies, as interpreted by

defendant, would impose a severe burden on interstate com-

merce by shifting to plaintiffs massive costs of the state Med-

icaid program voluntarily undertaken by Connecticut. The

effect of the Threatened Lawsuit (and the similar pending

lawsuits in other states) and the provisions of Connecticut

Law upon which defendant relies, as interpreted by defendant,

would be to impose ongoing massive costs upon the plaintiffs

and adversely impact the sale of cigarettes in interstate com-

merce. In light of the inherent mobility of the American pop-

ulation, the Constitutional right to travel, and the ability to

purchase cigarettes in neighboring states, plaintiffs could not

insulate themselves from the draconian liability sought to be

imposed by defendant (or the Attorneys General of the other

states that have brought suit).

51. Moreover, Connecticut has sought to impose these

massive costs on cigarettes — a product manufactured outside

the State of Connecticut.

RA-19

52. The principles of state law relied upon by defendant in

the Threatened Lawsuit, as interpreted by the defendant, con-

stitute an improper interference by Connecticut in interstate

commerce in violation of the Commerce Clause of the United

States Constitution, U.S. Const. Art. I, § 8, cl. 3.

Second Claim for Relief

(Due Process)

53. Plaintiffs repeat and reallege paragraphs | through 48

hereof.

54. The Threatened Lawsuit and the provisions of Con-

necticut Law upon which defendant relies, as interpreted by

defendant, seek to relieve the State of Connecticut of its own

voluntarily-undertaken obligations (by choosing to participate

in the Medicaid program) to pay Medicaid expenses to

Medicaid-eligible individuals, at the expense of severely

impairing the rights of plaintiffs, which are all out-of-state

businesses.

55. As interpreted by defendant, the provisions of Con-

necticut Law upon which defendant relies in the Threatened

Lawsuit entitle the State of Connecticut to recover Medicaid

payments from plaintiffs (i) on a retroactive basis, and (ii)

without regard to some or all of the elements of proof that any

actual Medicaid recipient would be required to establish to

recover medical costs from plaintiffs, and some or all of the

defenses that plaintiffs would have against any actual Medi-

caid recipient. Defendant intends to impose this massive

and radical departure from law on cigarettes — a lawful prod-

uct — to the exclusion of numerous other products and activ-

ities that may contribute to the costs of Medicaid. Defendant

seeks retroactively to impose liability on plaintiffs arising

from past conduct that the state has for many years counte-

nanced and regulated and from which it has generated enor-

mous revenue through taxation.

RA-20

56. The provisions of Connecticut Law upon which defen-

dant relies in the Threatened Lawsuit, as in.erpreted by defen-

dant, are invalid under the Fourteenth Amendment to the

United States Constitution, in that they permit a deprivation

of property without due process of law.

57. The provisions of Connecticut Law upon which defen-

dant relies in the Threatened Lawsuit, as interpreted by defen-

dant, are unconstitutional for the further reason that the

manner in which they are sought to be applied by defendant

deprives plaintiffs of their property without due process of

law in violation of the Fourteenth Amendment to the United

States Constitution.

Third Claim for Relief

(Equal Protection)

58. Plaintiffs repeat and reallege paragraphs | through 48

hereof.

59. Despite the fact that there are myriad factors that may

contribute to the costs of Medicaid, the provisions of Con-

necticut Law upon which defendant relies in the Threatened

Lawsuit, as interpreted by defendant, arbitrarily seek to

impose massive costs upon cigarette manufacturers retroac-

tively and prospectively without regard to established legal

principles and irrespective of any rights and defenses

cigarette manufacturers would have against any actual Med-

icaid recipient.

60. The provisions of Connecticut Law upon which defen-

dant relies in the Threatened Lawsuit, as interpreted by defen-

dant, violate plaintiffs’ rights under the Equal Protection

Clause of the Fourteenth Amendment to the United States

Constitution.

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RA-21

Fourth Claim for Relief

(Supremacy Clause; Medicaid Preemption)

61. Plaintiffs repeat and reallege paragraphs 1 through 48

hereof.

62. The provisions of Connecticut Law upon which defen-

dant relies in the Threatened Lawsuit, as interpreted by defen-

dant, are in conflict with (and are thus preempted by) the

Medicaid Act and regulations, including but not limited to in

the following respects: (1) by allowing the state to sue in a

Capacity “independent” of the rights of actual Medicaid recip-

ients, rather than pursuant to the assignment/subrogation

scheme mandated by federal law; (2) by allowing the state to

bring a mass suit rather than a suit relating to specific indi-

vidual Medicaid recipients; (3) by allowing the state to bring

a mass suit against companies in a particular industzy; (4) by

allowing the state to sue beyond the 60-day limitations period

mandated by 42 C.F.R. § 433.139(d)(2); (5) by allowing the

state to bring a suit not authorized by the State Medicaid Plan

approved by the United States Department of Heaith and

Human Services; and (6) by permitting the Attorney General

to bring suit against the cigarette manufacturers in violation

of the “single State agency” requirement of federal law.

63. In addition, in light of the comprehensive scheme

established by the federal Medicaid Act and the regulations

promulgated thereunder, even apart from specific conflicts

(including those enumerated in 962 above), the provisions of

Connecticut Law upon which defendant relies in the Threat-

ened Lawsuit, as interpreted by defendant, are preempted by

the Medicaid Act and regulations thereunder.

64. Further, as described above, under the comprehensive

system set forth in the Medicaid Act and regulations pro-

mulgated thereunder, Connecticut is only authorized to bring

against plaintiffs claims for third-party liability for Medicaid

payments with respect to the rights (if any) that individual

Medicaid recipients might have against plaintiffs. Accord-

RA-22

ingly, the provisions of Connecticut Law upon which defen-

dant relies, to the extent that they purport to authorize an

“independent cause of action” in favor of the State of Con-

necticut, conflict with the Medicaid Act and regulations there-

under.

65. Accordingly, the provisions of Connecticut Law upon

which defendant relies in the Threatened Lawsuit are incon-

sistent with and preempted by the Medicaid Act and regula-

tions thereunder and violate the Supremacy Clause of the

United States Constitution.

Fifth Claim for Relief

(Supremacy Clause; Preemption Under the

Public Health Cigarette Smoking Act of 1969)

66. Plaintiffs repeat and reallege paragraphs | through 48

hereof.

67. In enacting the Federal Cigarette Labeling and Adver-

tising Act of 1965 and its successor, the Public Health Smok-

ing Act of 1969, Congress struck a careful balance among (i)

recognizing the importance of cigarettes to our national econ-

omy and the economies of tobacco growing and manufactur-

ing states by facilitating the sale of cigarettes in interstate

commerce; (ii) providing that a warning label be placed on

each package of cigarettes; and (ili) allowing individual cus-

tomers to exercise their personal freedom of choice to smoke

or not to smoke. Congress required that the statement

“WARNING: THE SURGEON GENERAL HAS DETER-

MINED THAT CIGARETTE SMOKING IS DANGEROUS

TO YOUR HEALTH?” (or a variation thereof) be printed in a

prominent place on all packages of cigarettes sold in the

United States. In addition, Section 5(b) of the Public Health

Cigarette Smoking Act of 1969 provided that “No require-

ment or prohibition based on smoking and health shall be

imposed under State law with respect to the advertising or

promotion of any cigarettes the packages of which are labeled

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RA-23

in conformity with the provisions of this chapter.” 15 U.S.C.

§ 1334.

68. Congress expressly stated that one of its purposes for

providing for uniform warnings and in preempting any other

state law “requirements or prohibitions” as aforesaid was that

“commerce and the national economy. . . be protected to the

maximum extent consistent with {the} declared policy” of

“adequately inform[ing] [the public] that cigarette smoking

may be hazardous to health.” 15 U.S.C. § 1331. The Supreme

Court has held that lawsuits seeking damages constitute

“requirement[s] or prohibition[{s]” by the states within the

meaning of these federal statutes. See Cipollone v. Liggett

Group, Inc., 112 S. Ct. 2608 (1992).

69. The Threatened Lawsuit and the provisions of Con-

necticut Law upon which defendant relies (as interpreted by

defendant) impose a “requirement or prohibition” based on

smoking and health with respect to the promotion and adver-

tising of cigarettes by seeking to impose massive costs of the

state Medicaid program upon plaintiffs irrespective of plain-

tiffs’ rights and duties with respect to any actual Medicaid

recipient.

70. The provisions of Connecticut Law upon which defen-

dant relies in the Threatened Lawsuit, as interpreted by defen-

dant, are accordingly preempted by the Public Health

Cigarette Smoking Act of 1969 and violate the Supremacy

Clause of the United States Constitution.

Sixth Claim for Relief

(Taking of Property)

71. Plaintiffs repeat and reallege paragraphs | through 48

hereof.

72. The Threatened Lawsuit and the provisions of Con-

necticut Law upon which defendant relies, as interpreted by

defendant, by seeking to extract from cigarette manufacturers

RA-24

Medicaid payments retroactively and prospectively without

regard to established legal principles and irrespective of any

rights and defenses cigarette manufacturers would have

against any actual Medicaid recipient, would create a severe

economic impact upon plaintiffs and greatly interfere with

plaintiffs’ settled investment-backed expectations.

73. The nature of the state’s action through the Threatened

Lawsuit and the provisions of Connecticut Law upon which

defendant relies, as interpreted by defendant, would constitute

in essence a confiscation of plaintiffs’ property by the state.

74. The provisions of Connecticut Law upon which defen-

dant relies in the Threatened Lawsuit, as interpreted by defen-

dant, violate plaintiffs’ rights under the Taking of Property

Clause of the Fifth Amendment to the United States Consti-

tution which is made applicable to the states under the Four-

teenth Amendment to the United States Constitution.

Seventh Claim for Relief

(First Amendment)

75. Plaintiffs repeat and reallege paragraphs | through 48

hereof.

76. Despite the fact that the United States Surgeon General

had concluded in 1964 that smoking cigarettes is not an

“addiction,” defendant will claim in the Threatened Lawsuit

that plaintiffs violated state law by contesting the highly-pub-

licized assertions going back at least to the 1960s by certain

government officials (including the Surgeon General in 1988),

anti-tobacco groups, and others that nicotine, a substance

found naturally in tobacco and cigarettes, is “addictive.”

77. Plaintiffs have the right under the First Amendment of

the United States Constitution to express their views on this

public issue. State laws or actions may not constitutionally be

used to stifle debate on controverted public issues so as to

enshrine the government’s side of a disputed issue as official

RA-25

orthodoxy, with any dissent being proscribed as “fraud.” Nor

may the state impose massive confiscatory penalties for plain-

tiffs’ expression of disagreement with the views of govern-

ment officials on this issue, with the monies extracted by the

State being used to reinforce the state’s views on this issue

through anti-smoking programs and campaigns that are con-

trary to the views held by such manufacturers, who would

thus be compelled to pay for speech with which they disagree.

78. The provisions of Connecticut Law upon which defen-

dant relies in the Threatened Lawsuit, as interpreted by defen-

dant, would deprive plaintiffs of their rights under the

First and Fourteenth Amendments to the United States

Constitution.

Eighth Claim for Relief

(Deprivation of Plaintiffs’ Constitutional

and Federal Law Rights Under Color of State Law)

79. Plaintiffs repeat and reallege paragraphs | through 48

hereof.

80. Defendant has been acting in concert and with the

encouragement and substantial assistance of certain anti-

tobacco activists, Attorneys General in certain other States,

members of plaintiffs’ contingency fee bar, and others in

preparing the Threatened Lawsuit and in seeking to foster

Similar lawsuits by other like-minded Attorneys General as

part of an effort that would, if successful. deprive plaintiffs of

rights secured by the Constitution and laws of the United

States as alleged above.

81. The provisions of Connecticut Law upon which defen-

dant relies in the Threatened Lawsuit, as interpreied by defen-

dant, would deprive plaintiffs of rights secured by the

Constitution and laws of the United States under color of state

law in violation of 42 U.S.C. § 1983.

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RA-26

Ninth Claim for Relief

(Connecticut State Constitutional, Statutory,

and Common Law Claims)

82. Plaintiffs repeat and reallege paragraphs | through 48

hereof.

83. This claim for relief raises various grounds arising

under the Connecticut State Constitution, Connecticut

statutes, and Connecticut common law if and to the extent

that such grounds may properly be presented in federal court

and are cognizable by this Court in this action.

84. The provisions of Connecticut Law upon which defen-

dant relies should not be construed to provide that the State is

entitled to recover medical assistance payments from plain-

tiffs (i) on a retroactive basis; or (1i) without proof of each

element of an individual Medicaid recipient’s legal claim and

without being subject to each of the defenses applicable to an

individual Medicaid recipient’s legal claim.

85. The Threatened Lawsuit, the claims to be asserted in

the Threatened Lawsuit, and the provisions of Connecticut

Law upon which defendant relies (as interpreted by defen-

dant) violate or are precluded by the Connecticut State Con-

stitution, Connecticut statutes, and Connecticut common law

with respect to the following provisions thereof, among oth-

ers: (a) equal protection under the Connecticut Constitution

Article First, Sections 1 and 20; (b) liberty of speech under

the Connecticut Constitution Article First, Sections 4 and 5;

(c) due process protection under the Connecticut Constitution

Article First, Sections 8, 9 and 10; (d) protection against the

taking of property without just compensation under the Con-

necticut Constitution Article First, Section 11; (e) separation

of powers under the Connecticut Constitution Article Second;

(f) statutory limits on defendant’s authority, including but not

limited to those contained in Title 3 and Title 4 of the Con-

necticut General Statutes; and (g) Connecticut common law

principles, including but not limited to principles of laches,

unclean hands, waiver, estoppel, and mitigation of damages.

RA-27

WHEREFORE, plaintiffs respectfully demand judgment as

follows:

A. On their First Claim for Relief, declaring that the pro-

visions of Connecticut Law upon which defendant relies in

the Threatened Lawsuit, as interpreted by defendant, violate

the Commerce Clause of the United States Constitution, and

permanently enjoining the defendant from prosecuting,

imposing or enforcing liability pursuant to the Threatened

Lawsuit.

B. On their Second Claim for Relief, declaring that the

provisions of Connecticut Law upon which defendant relies in

the Threatened Lawsuit, as interpreted by defendant, are

invalid, and unconstitutional as applied to plaintiffs, under the

Due Process Clause of the Fourteenth Amendment to the

United States Constitution, and permanently enjoining the

defendant from prosecuting, imposing or enforcing liability

pursuant to the Threatened Lawsuit.

C. On their Third Claim for Relief, declaring that the pro-

visions of Connecticut Law upon which defendant relies in

the Threatened Lawsuit, as interpreted by defendant, violate

the Equal Protection Clause of the Fourteenth Amendment to

the United States Constitution, and permanently enjoining the

defendant from prosecuting, imposing or enforcing liability

pursuant to the Threatened Lawsuit.

D. On their Fourth Claim for Relief. declaring that the pro-

visions of Connecticut Law upon which defendant relies in

the Threatened Lawsuit are preempted by the Medicaid Act

and the regulations promulgated thereunder and violate the

Supremacy Clause of the United States Constitution, and per-

manently enjoining the defendant from prosecuting, imposing

or enforcing liability pursuant to the Threatened Lawsuit.

E. On their Fifth Claim for Relief, declaring that the pro-

visions of Connecticut Law upon which defendant relies in

the Threatened Lawsuit, as interpreted by defendant, are pre-

empted by the Public Health Cigarette Smoking Act of 1969

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RA-28

and violate the Supremacy Clause of the United States Con-

stitution, and permanently enjoining the defendant from pros-

ecuting, imposing or enforcing liability pursuant to the

Threatened Lawsuit.

F. On their Sixth Claim for Relief, declaring that the pro-

visions of Connecticut Law upon which defendant relies in

the Threatened Lawsuit, as interpreted by defendant, violate

the Taking of Property Clause of the Fifth Amendment to the

United States Constitution, which is made applicable to the

States under the Fourteenth Amendment to the United States

Constitution, and permanently enjoining the defendant from

prosecuting, imposing or enforcing liability pursuant to the

Threatened Lawsuit.

G. On their Seventh Claim for Relief, declaring that the

provisions of Connecticut Law upon which defendant relies in

the Threatened Lawsuit, as interpreted by defendant, violate

the First and Fourteenth Amendments to the United States

Constitution, and permanently enjoining the defendant from

prosecuting, imposing or enforcing liability pursuant to the

Threatened Lawsuit.

H. On their Eighth Claim for Relief, declaring that the pro-

visions of Connecticut Law upon which defendant relies in

the Threatened Lawsuit, as interpreted by defendant, would

deprive plaintiffs of rights secured by the Constitution and

Laws of the United States under colorx of state law, in viola-

tion of 42 U.S.C. § 1983, and permanently enjoining the

defendant from prosecuting, imposing or enforcing liability

pursuant to the Threatened Lawsuit.

I. On their Ninth Claim for Relief, declaring that the

Threatened Lawsuit, the claims to be asserted therein, and the

provisions of Connecticut Law upon which defendant relies,

as interpreted by defendant, violate the Connecticut State

Constitution, Connecticut statutes, and Connecticut common

law in the respects set forth in the Ninth Claim for Relief, and

to the extent that such an injunction premised on such viola-

tions may properly be sought and is cognizable by this Court,

RA-29

permanently enjoining the defendant from prosecuting,

imposing or enforcing liability pursuant to the Threatened

Lawsuit.

J. Awarding plaintiffs their costs and disbursements.

including reasonable attorneys’ fees, incurred in connection

with this action.

K. Awarding plaintiffs such other and further relief as to

the Court may seem just ‘and proper.

Dated: June 28, 1996

Respectfully submitted,

Attorneys for Plaintiff

Philip Morris Incorporated

/s/_ William R. Murphy

William R. Murphy (ct 04155)

Robert K. Ciulla (ct 04262)

Margaret A. Little (ct 00317)

Ben A. Solnit (ct 00292)

TYLER, COOPER & ALCORN

205 Church Street

P.O. Box 1936

New Haven, CT 06509-1910

(203) 784-8200

Of Counsel:

Herbert M. Wachtell

Peter C. Hein

Barbara Robbins

WACHTELL, LIPTON, ROSEN & KATZ

51 West 52nd Street

New York, NY 10019

(212) 403-1000

RA-30

Attorneys for Plaintiff

Lorillard Tobacco Company

/s/ William R. Murphy

William R. Murphy (ct 04155)

TYLER COOPER & ALCORN

205 Church Street

P.O. Box 1936

New Haven, CT 06509-1910

(203) 784-8200

Of Counsel:

Gene E. Voigts

John C. Monica

SHOOK, HARDY & BACON

One Kansas City Place

1200 Main Street

Kansas City, MO 64105

(816) 474-6550

Attorneys for Plaintiff

R.J. Reynolds Tobacco Company

/s/ Edward F. Hennessey

Edward F. Hennessey, III (ct 04222)

David Thomas Ryan (ct 05713)

ROBINSON & COLE

One Commercial Plaza

280 Trumbull Street

Hartford, CT 06103-3597

(860) 275-8200

Of Counsel:

Robert F. McDermott, Jr.

JONES, DAY, REAVIS & POGUE

Metropolitan Square

1450 G Street, N.W., Suite 700

Washington, D.C. 20005-2088

(202) 879-3875

RA-3]

Attorneys for Plaintiff

Brown & Williamson Tobacco

Corporation

/s/_ Francis H. Morrison, III

Francis H. Morrison, III (ct 04200)

DAY, BERRY & HOWARD

CityPlace I

Hartford, CT 06103

(860) 275-0100

Of Counsel:

David M. Bernick, P.C.

KIRKLAND & ELLIS

200 East Randolph Drive

Chicago, IL 60601

(312) 861-2000