UNITED STATES DISTRICT COURT consequences of smoking and the highly addictive
NORTHERN DISTRICT OF CALIFORNIA nature of nicotine. After pledging to conduct and make
public the results of "objective" research by
"distinguished" scientists, the defendants kept secret
CITY AND COUNTY OF SAN FRANCISCO; this research, distorting or burying the results in order
COUNTY OF ALAMEDA; COUNTY OF to cast smoking in a more favorable light. With
CONTRA COSTA; COUNTY OF MARIN; respect to nicotine, defendants concealed what they
COUNTY OF SACRAMENTO; COUNTY OF have known since at least the early 1960s: "We are,
SAN BERNADINO; COUNTY OF SAN MATEO; then, in the business of selling nicotine, an addictive
COUNTY OF SANTA BARBARA; COUNTY OF drug effective in the release of stress mechanisms." As
SANTA CLARA; COUNTY OF SANTA CRUZ; recently as 1994, defendants' top executives swore in
and COUNTY OF SHASTA, front of Congress that cigarettes are not addictive.
As detailed in the First Amended Complaint,
the defendants have engaged in these and other
v. deceptive activities, notwithstanding their public
pronouncements, starting as early as 1954, that the
"people's health [is] a basic responsibility, paramount
PHILIP MORRIS, INC.; R.J. REYNOLDS
to every other consideration in our business."
TOBACCO COMPANY; BROWN &
Defendants expressly pledged to "cooperate closely
WILLIAMSON TOBACCO CORPORATION;
B.A.T. INDUSTRIES PLC; LORILLARD with those whose task it is to safeguard the public
TOBACCO COMPANY; LIGGETT GROUP, health," but in fact did just the opposite.
INC.; THE AMERICAN TOBACCO COMPANY;
THE COUNCIL FOR TOBACCO Defendants' deceit is extreme. Moreover, the
RESEARCH -- U.S.A., INC; and THE harm that has resulted, including the plaintiff Counties'
TOBACCO INSTITUTE, INC., required payment of enormous sums to treat their
Defendants. indigent residents' smoking-related illnesses, was
entirely foreseeable and direct.1 The tobacco
defendants have wrongfully benefited from their
Civil Action No. C-96-2090-DLJ misconduct, and are accountable both in law and in
January 22, 1997
Not surprisingly, defendants contend that they
are not liable for these harms and seek the
PLAINTIFFS' (CORRECTED) MEMORANDUM extraordinary remedy of dismissal. However, the
OF POINTS AND AUTHORITIES IN defendants do not challenge the sufficiency of the
OPPOSITION TO DEFENDANTS' Counties' allegations. Nor do defendants parse the
MOTION TO DISMISS elements of the different state law claims made by the
Counties, some of which are legal and others of which
are equitable. Instead, defendants assert two general
INTRODUCTION propositions which they say require the summary
dismissal of all of the Counties' claims. First,
This case is about a decades-long conspiracy defendants contend that the Counties' harm is
of lies and deceit involving the nation's leading tobacco "derivative" and "remote," and therefore not
companies and their public relations arms ("the actionable. Second, defendants mischaracterize the
tobacco defendants" or "defendants"). The objects of case as a products liability action for personal injuries
this conspiracy are two-fold. First, by engaging in a in order to argue that they are immune from liability
campaign of disinformation targeted at consumers and for those types of injuries. Neither argument succeeds.
public health providers alike, defendants have sought
to insure inflated profits. Second, defendants have Defendants' first proposition rests on a
sought to avoid responsibility for the tragic results of fundamental misperception of the Counties' allegations.
their deception -- death, disease and massive costs for Defendants misapply concepts of causation sounding
public health care. in negligence to claims of fraud and intentional breach
The tobacco defendants achieved the objects 1
Plaintiffs are the City and County of San Francisco, and the
of their conspiracy by systematically suppressing and Counties of Alameda, Contra Costa, Marin, Sacramento, San
Bernadino, San Mateo, Santa Barbara, Santa Clara, Santa Cruz,
manipulating the truth about the adverse health and Shasta ("the Counties").
of an assumed duty. In the realm of intentional torts, recoveries or require apportionment of damages among
unlike in negligence, the reach of liability is extended the Counties and third parties; and (4) there is no third
to more "remote" injuries. Intentional tortfeasors are party who is in a superior position or has greater
held directly liable to those whom they harm if, as incentive to assert the Counties' RICO claims.
alleged here, their wrongdoing was a substantial factor Moreover, the Counties' economic losses qualify as a
in causing the harm. RICO injury. The Supreme Court has confirmed that
the same RICO violations that cause personal injuries
The Counties do allege one claim that sounds to some victims also may cause RICO-compensable
partly in negligence. Count IV asserts that defendants injuries to the business or property of others.
negligently breached duties they assumed toward the
Counties and the public. Even here, however, Far from extending traditional principles of
defendants' argument concerning remoteness fails civil liability, as defendants' histrionics would have it,
because defendants completely misstate the applicable the Counties have alleged facts that give rise to liability
California law. both in law and equity. The defendants' motion should
Defendants' assertion that the Counties' harm
is too remote also hinges on inapposite cases, where a STATEMENT OF FACTS
plaintiff's harm is incidental to a contract. Here, in
marked contrast, the economic losses sustained by the By the early 1950s, scientific studies had
Counties were a necessary, foreseeable consequence of begun to suggest a link between cigarette smoking and
their long-standing statutory obligation to care for their cancer. First Amended Complaint ("Com."), ¶ 53.
indigent residents. The widespread reporting of this emerging science
caused what tobacco officials later termed, the "Big
Defendants' second general proposition Scare." Id. According to contemporaneous industry
similarly misconceives the Counties' action. Here, documents, the tobacco companies viewed the
defendants contend that the Counties' state law claims emerging science as "extremely serious and worthy of
fall within the immunity provided by California Civil drastic action . . . salesmen in the [tobacco] industry
Code § 1714.45 for product liability actions brought by are frantically alarmed . . . the decline in tobacco
consumers. But this is not a product liability action stocks on the stock exchange market has caused grave
brought by consumers for personal injuries. This is an concern." Id. In response to this perceived threat to
action brought by governmental entities for economic profitability, on December 15, 1953, senior executives
losses resulting from fraud and breach of assumed of the leading cigarette manufacturers met. Id., ¶ 54.
duties. In any event, section 1714.45 speaks only to In attendance were representatives of the public
tort claims for damages; it does not address the relations firm Hill and Knowlton. Id.
Counties' equitable claims for restitution and unjust
enrichment, and it specifically allows claims for breach At this meeting and in subsequent
of an express warranty, which the Counties have consultations with their public relations firm, the
alleged. Moreover, contrary to defendants' arguments, tobacco companies formulated a strategy to subvert the
California Government Code § 23004.1 does not limit emerging science with a far-ranging and carefully
the Counties' remedy to claims in subrogation. To the planned campaign to obscure the facts and confuse the
contrary, section 23004.1 expressly provides the public. The companies
Counties with a direct statutory right of recovery, a
right that is in addition to the Counties' preexisting agreed to go along with a public
claims at common law. Neither statute serves as a bar relations program on the health issue . . .
to the Counties' legal or equitable claims. they are also emphatic in saying that the
entire activity is a long-term, continuing
Finally, defendants argue that the Counties' program, since they feel that the problem
RICO claims are barred because the injuries alleged is one of promoting cigarettes and
are too remote and not of the type deemed recoverable protecting them from these and other
under RICO. However, the Counties' RICO claims are attacks that may be expected in the
neither derivative of, nor shared with, the RICO claim future.
of any other party. The Counties' allegations satisfy
the Supreme Court's test for proximate cause in the Id. As Hill and Knowlton advised, "[i]t is
RICO context, in that (1) the Counties were directly important that the industry do nothing to appear in the
injured; (2) they stand at the same level of injury as do light of being callous to considerations of health or of
others injured by defendants' violative acts; (3) the belittling medical research which goes against
Counties' claims do not present a risk of multiple cigarettes." Id., ¶ 57 (emphasis added). Thus, the
decision was made by five of the six cigarette medicine, science, and education will be
manufacturers to form the Tobacco Industry Research invited to serve on this Board. These
Committee ("TIRC").2 Id., ¶ 58. scientists will advise the Committee on
its research activities.
On January 4, 1954, the tobacco companies
announced the formation of TIRC, pledging that This statement is being issued because
through TIRC, they would conduct and report we believe the people are entitled to
objective research regarding smoking and health. Id., ¶ know where we stand on this matter and
62. This pledge was set forth in a full-page newspaper what we intend to do about it.
advertisement entitled, "A Frank Statement to
Cigarette Smokers." Id., ¶63. The companies placed Id., ¶ 64.
the "Frank Statement" in 448 newspapers, such that it
circulated to a readership of 43,245,000 in 258 cities In fact, from the start, TIRC was an industry
nation-wide. Id. front. Hill and Knowlton, not independent scientists,
operated and effectively controlled TIRC, which was
In the "Frank Statement," the tobacco located just one floor below Hill and Knowlton’s
companies expressly assumed duties to the public and offices. Id., ¶¶ 59-60. In 1954 alone, 35 staff
to those charged with safeguarding the public health: members of Hill and Knowlton worked for TIRC; over
50% of TIRC’s budget was used to pay for these
We accept an interest in people's health services. Id., ¶ 61. Moreover, even as the companies
as a basic responsibility, paramount to publicly stated that there "is no proof" that smoking
every other consideration in our causes cancer, they knew that eight years earlier, an
business. industry researcher who later joined the Board of
defendant Lorillard Tobacco Company had reported
T]here is no proof that cigarette smoking the following:
is one of the causes [of lung cancer].
Certain scientists and medical authorities
We believe the products we make are have claimed for many years that the use
not injurious to health. of tobacco contributes to cancer
development in susceptible people. Just
We always have and always will enough evidence has been presented to
cooperate closely with those whose task justify the possibility of such a
it is to safeguard the public health. presumption.
We are pledging aid and assistance to Id., ¶ 66 (emphasis added).
the research effort into all phases of
tobacco use and health. After issuing the "Frank Statement," the
tobacco companies accumulated overwhelming
For this purpose we are establishing a evidence of the injurious effects of smoking, all of
joint industry group consisting initially which was either concealed from the public or, if made
of the undersigned. This group will be public, attacked. Id., ¶¶67-73. Industry documents
known as the TOBACCO INDUSTRY reflect the companies’ awareness:
[T]he evidence . . . is building up that
In charge of the research activities of the heavy cigarette smoking contributes to
Committee will be a scientist of lung cancer . . . .
unimpeachable integrity and national
repute. In addition there will be an There are biologically active materials
Advisory Board of scientists present in cigarette smoke. These are:
disinterested in the cigarette industry. A (a) cancer causing (b) cancer promoting
group of distinguished men from (c) poisonous . . . .
2 Basically, we accept the inference of a
Liggett Group, Inc. joined TIRC in 1964, the same year the
Surgeon General issued his first report linking cigarette smoking to causal relationship between the chemical
lung cancer. Com., ¶ 58. Also in 1964, TIRC changed its name to properties of ingested tobacco smoke
the Council for Tobacco Research ("CTR"). Id. In 1958, a second
trade group, the Tobacco Institute, was formed. Id. Both CTR and
and the development of carcinoma . . . .
the Tobacco Institute are defendants in this action.
Id., ¶ 68. cancer and other diseases. Id., ¶¶ 87-93.
The information contained in these and other [The CTR's (formerly TIRC’s) scientific
internal documents contrasts sharply with the projects] have not been selected against
industry’s public statements. For example, in its report specific scientific goals, but rather for
to the Surgeon General in 1963, defendant Liggett various purposes such as public
Group omitted the views of its researchers and relations, political relations, position for
consultants regarding the link between smoking and litigation, etc. Thus, it seems obvious
cancer. Id., ¶¶ 69-70. The tobacco companies also that reviews of such programs for
consistently reaffirmed in public statements the scientific relevance and merit in the
undertakings contained in the "Frank Statement," while smoking and health field are not likely to
denying knowledge of the ill health effects of smoking. produce high ratings.
[The CTR is] an industry shield . . . .
We recognize that we have a special The ‘public relations’ value of CTR
responsibility to the public -- to help must be considered and continued . . . .
scientists determine the facts about It is extremely important that the
tobacco and health, and about certain industry continue to spend their dollars
diseases that have been associated with on research to show that we don't agree
tobacco use. We accepted this that the case against smoking is closed .
responsibility in 1954 by establishing . . . There is a ‘CTR basket’ which must
the TIRC, which provides research be maintained for ‘PR’ purposes . . . .
grants to independent scientists. We
pledge continued support of this Id., ¶¶88, 90 (emphasis added). Indeed, in
program of research until the facts are 1993, a former employee of CTR confirmed that
known. "[w]hen CTR researchers found out that cigarettes
were bad and it was better not to smoke, we didn’t
We shall continue all possible efforts to publicize that." Id., ¶ 91. He continued, "The CTR is
bring the facts to light. just a lobbying thing. We were lobbying for
cigarettes." Id. This remained CTR’s unstated
After millions of dollars and over 20 purpose throughout its existence:
years of research, the question about
smoking and health is still a question. In the cigarette controversy, the public
— especially those who are present and
In the interest of absolute objectivity, the potential supporters (e.g., tobacco state
tobacco industry has supported totally congressmen and heavy smokers) —
independent research efforts with must perceive, understand, and believe
completely non-restrictive funding. in evidence to sustain their opinions that
smoking may not be the causal factor.
[The industry] believes the American
public is entitled to complete, Id., ¶ 89.
authenticated information about
cigarette smoking and health . . . . The In addition to using the guise of "objective"
tobacco industry recognizes and accepts research to misrepresent and suppress the facts relating
a responsibility to promote the progress to the adverse effects of smoking, the tobacco
of independent scientific research in the companies continually misrepresented and suppressed
field of tobacco and health. the real reason people smoke. By the early 1960's, the
tobacco companies knew that
Id., ¶¶75-78; see also id., ¶¶79-82.
. . . nicotine is addictive. We are, then,
These representations about sponsoring in the business of selling nicotine, an
"independent" research and bringing the truth to light addictive drug . . . .
were false and deceptive. Again, internal industry
documents reveal the cynical objectives of defendants' The cigarette should be conceived not as
research: to enhance their public relations and a product but as a package. The
maintain the fiction that a scientific controversy product is nicotine. . . . Think of the
continued to exist about whether smoking causes cigarette pack as a storage container for
a day's supply of nicotine. . . . Think of has targeted this group through promotional and sales
the cigarette as a dispenser for a dose techniques designed to influence them to smoke. Id.,
unit of nicotine. ¶¶ 186-192. As RJR’s "Winston Man" testified before
Id., ¶¶ 124, 137 (emphasis added).
I was clearly told that young people
To this day, the tobacco companies have were the market that we were going after
concealed this information from the public and public . . . it was made clear to us that this
health officials. Id., ¶¶ 122-149. The companies have image was important because kids like
long understood that to do otherwise would hurt sales: to role play, and we were to provide the
"If the industry’s introduction of acceptable low- attractive role models for them to follow
nicotine products does make it easier for dedicated . . . I was told I was a live version of the
smokers to quit, then the wisdom of the introduction is GI Joe . . . .
open to debate." Id., ¶ 142 (quoting a 1978 Philip
Morris report).3 Thus, the tobacco companies chose to Id., ¶ 191.
use their superior knowledge not to "cooperate closely
with those whose task it is to safeguard the public LEGAL STANDARD
health," as they promised in the "Frank Statement," but
rather, secretly to control and manipulate the nicotine When acting on a motion to dismiss, a court
content of cigarettes, thereby addicting smokers more must assume the plaintiff's allegations are true and
effectively. Id., ¶¶ 150-181. To this ignominious end, construe the complaint in the light most favorable to
the tobacco companies have (1) selectively bred, the plaintiff. See, e.g., Parks School of Business v.
cultivated and selected tobacco plants for nicotine Symington, 51 F.3d 1480, 1484 (9th Cir. 1995); United
content, (2) developed hybrid tobacco plants with States v. Redwood City, 640 F.2d 963 (9th Cir. 1981).
super-high nicotine levels, and (3) added extraneous "The accepted rule is that a complaint is not to be
chemicals to increase the amount of nicotine absorbed. dismissed 'unless it appears beyond doubt that the
Id. plaintiff can prove no set of facts in support of his
claim which would entitle him to relief.'" Redwood
Finally, the companies’ scheme to deceive the City, 640 F.2d at 966 (quoting Conley v. Gibson, 355
public and those responsible for safeguarding the U.S. 41, 45-46, 78 S.Ct. 99, 2 L. Ed. 2d 80 (1957)).
"people’s health" extended to the most vulnerable in
society, children and adolescents. The tobacco Even if the face of the pleadings indicate that
companies know that the overwhelming percentage of recovery is "very remote, the claimant is still entitled to
smokers begin smoking and become addicted before offer evidence to support its claims." Redwood City,
the age of 18. Id., ¶¶ 182-185. For that reason, 640 F.2d at 966 (citing Scheuer v. Rhodes, 416 U.S.
although publicly denying it, the industry consciously 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974)).
Under this rule, "it is only the extraordinary case in
In a secret Brown & Williamson memorandum that only recently which dismissal is proper." Redwood City, 640 F.2d at
came to light, senior executives recommended in the late 1970's
that the company discontinue efforts to develop an alternative
966 (citing Corsican Productions v. Pitchess, 338 F.2d
cigarette product unless the product was as addictive as cigarettes: 441, 442 (9th Cir. 1964); 5 C. Wright & A. Miller,
Federal Practice and Procedure, § 1357 at 598
We are searching explicitly for a socially
acceptable addictive product involving: a pattern (1969)). As discussed below, the Counties have
of repeated consumption. . . . [T]he essential sufficiently alleged both legal and equitable claims.
constituent is most likely to be nicotine or a ‘direct’
substitute for it. . . . [W]e . . . think that
consideration should be given to the hypothesis ARGUMENT
that the high profits additionally associated with
the tobacco industry are directly related to the fact
that the customer is dependent upon the product. I.
Looked at another way, it does not follow that
future alternative ‘product X’ would sustain a profit THE COUNTIES STATE CLAIMS FOR
level above most other products/business
activities unless, like tobacco, it was associated FRAUD AND CONSPIRACY
with dependence. If, in fact, it were not able to
sustain a high profit level then there is no ‘a priori’
reason why tobacco companies should take the
The Counties allege that beginning in 1953
risk of investing in a new speculative area but and continuing to this day, the tobacco defendants have
rather should consider investment into engaged in fraud and conspiracy to commit fraud on an
unprecedented scale. Defendants argue that the
(August 28, 1979 memorandum, attached as Exhibit G to the Counties' claims should be dismissed because the
Declaration of Robert J. Nelson in Opposition to Motion to Dismiss)
("Nelson Decl.") (emphasis added).
Counties' injuries are somehow "too remote" or
"derivative." Defendants' Memorandum of Points and 220, 234, 219 P.2d 818 (1950).
Authorities In Support of Motion to Dismiss ("Deft.
Mem."), at 3, 8-30. Defendants' argument fails for two 1. The Doctrine of Proximate Cause Does
fundamental reasons. First, it relies on the doctrine of Not Apply to Intentional Torts
proximate cause developed in the context of
negligence. This claim is based on allegations of In California, as elsewhere, proximate cause
intentional misconduct, where the law of causation is has little application to intentional torts. Instead,
qualitatively different. Second, defendants' argument intentional tortfeasors are directly liable to those whom
depends on cases where the harm to the plaintiff is they harm if their wrongdoing was a substantial factor
incidental to a contract. Here, the harm to the in causing the harm. As the court stated in Tate v.
Counties was a necessary, foreseeable and inevitable Canonica, 180 Cal. App. 2d 898, 5 Cal. Rptr. 28
consequence of a statutory obligation to provide care (1960):
to their indigent residents.
The law has for a long time recognized a
A. The Counties Allege Intentional Misconduct, distinction between intentional and
Not Negligence negligent torts, and has generally
recognized fewer defenses, and been
The Counties' claims for fraud and conspiracy more inclined to find that defendants'
to commit fraud are based on the tobacco defendants' conduct was the legal cause of the harm
deliberate and concerted campaign of deception since complained of, where the tort is
1953. Defendants have repeatedly made false intentional. Indeed, it appears that many
statements calculated to lull the public into believing of the limitations upon liability that are
that smoking is not dangerous or addictive and to subsumed under the doctrine of
reassure public health officials that the industry would 'proximate cause,' as usually expounded
conduct and make public objective research on in negligence cases, do not apply to
smoking and health. See, e.g., Com., ¶¶63, 74-81. intentional torts.
When defendants' internal research showed that
smoking was dangerous and addictive, defendants shut Id. at 904 (citations omitted, emphasis added).
down the research and buried the results. Id., ¶¶94-
105. In Tate, the court approved a wrongful death
action where the plaintiff alleged that a third party's
Further, while publicly denying that cigarettes intentional infliction of emotional distress upon her
are addictive, defendants have known privately for husband caused his suicide. The defendants
years that "[w]e are, then, in the business of selling contended that the suicide was an independent,
nicotine, an addictive drug . . . ." Id., ¶124(c); see also intervening -- i.e., superseding -- cause. The court
id., ¶¶122-49. Defendants secretly manipulated the emphatically rejected this argument: "The notion of
level and effect of nicotine to increase the independent intervening cause has no place in the law
addictiveness of their product, even boosting the of intentional torts, so long as there is a factual chain
nicotine content of tobacco through genetic of causation." Id. at 907 (citation omitted, emphasis
engineering. Id., ¶¶150-68. Knowing that most added); see also 5 Witkin, Summary of California
smokers start as teenagers only to become addicted for Law, Torts (9th ed. 1988), § 18 at p. 79.
life, defendants deliberately targeted youth in their
marketing strategy, again, publicly denying doing so. In Helm v. K. O. G. Alarm Company, 4 Cal.
Id., ¶¶182-92. App. 4th 194, 5 Cal. Rptr. 2d 615 (1992), the plaintiff
sued a burglar alarm company for fraud and intentional
Defendants engaged in several different kinds misrepresentation. The plaintiff suffered injuries when
of fraud. See generally, Cal. Civil Code §1710. the alarm did not function as represented, and the
Making a promise or giving an assurance without any residence was burgled and arsoned. Relying on a
intention of performing is fraud. See, e.g., Union negligence case, Guthrie v. American Protection
Flower Market v. Southern California Flower Market, Industries, 160 Cal. App. 3d 951, 206 Cal. Rptr. 834
10 Cal. 2d 671, 76 P.2d 503 (1938). Intentionally (1984), the trial court granted a motion for nonsuit,
making false statements with the intent to induce others holding that the plaintiff could not, as a matter of law,
to act or to refrain from acting is fraud. See, e.g., establish causation. Although the court of appeals
Lacher v. Superior Court, 230 Cal. App. 3d 1038, 281 affirmed the judgment, the court expressly rejected the
Cal. Rptr. 640 (1991). Speaking half truths while trial court's finding on causation as a matter of law:
deliberately concealing relevant facts is fraud. See
e.g., Bank of America v. Greenbach, 98 Cal. App. 2d Whatever the particular definition of
'cause' may be in cases such as Guthrie California Supreme Court considered whether, and to
(see Mitchell v. Gonzales, 54 Cal. 3d whom, an auditor should be liable. The Court
1041 (1991)), the definition of 'cause' in determined that only the expressly intended
cases involving intentional torts appears beneficiaries of the report have a claim of negligent
much broader: 'Indeed, it appears that misrepresentation. Id. at 413. By contrast, when an
many of the limitations upon liability auditor makes a fraudulent misrepresentation, that
that are subsumed under the doctrine of auditor is liable to all persons whom he or she
'proximate cause', as usually expounded "reasonably should have foreseen" would rely upon the
in negligence cases, do not apply to representation. Id. at 415. The Court cited the seminal
intentional torts.' (Tate v. Canonica, 180 case of Ultramares Corporation v. Touche, 255 N.Y.
Cal.App.2d 898 (1960)). 170, 174 N.E. 441 (1931). There, Justice Cardozo
held that the trial court properly dismissed a claim for
Helm, 4 Cal. App. 4th at 201-02 (emphasis added).4 negligent misrepresentation but erred in dismissing a
claim for intentional misrepresentation based on the
The Ninth Circuit also has recognized this same set of facts. Bily, supra, 3 Cal. 4th at 387.
fundamental distinction in applying California law:
Courts in other states have drawn the same
The fundamental inquiry is of course distinction between intentional and negligent torts. For
different in the case of intentional torts. example, in Shades Ridge Holding Company v. Cobbs,
Foreseeability is not at issue because it Allen & Hall Mortgage Company, Inc., 390 So.2d 601
is not a requisite to recovery. Since all (Ala. 1980), the Alabama Supreme Court observed that
consequences, no matter how remote, "in cases of intentional or aggravated acts there is an
harming a party with a cause of action extended liability and the rules of proximate causation
for an intentional tort give rise to are more liberally applied than would be justified in
defendant's liability, the inquiry focuses negligence cases." Id. at 607. The Court added that
on the inherent and relational quality of "'[o]ne area in which it may be especially likely that
the wrongful act rather than on the the 'foreseeability' limitation will be cast aside is that of
foreseeability of its consequences. intentional torts, as to which it has been said often
enough that there is more extended liability.'" Id. at
DeVoto v. Pacific Fidelity Life Insurance Co., 618 609 (quoting Prosser, Law of Torts, § 43 at p. 263 (4th
F.2d 1340, 1350 (9th Cir. 1980) (emphasis added). ed. 1971)). The Court explained:
This relaxed principle of causation in This trend is dictated by the policy that
intentional torts specifically applies to cases based on liability even though potentially
fraud. Over one hundred years ago, the California tremendous should be imposed on the
Supreme Court recognized: wrongdoer rather than the victim be
uncompensated. Hence, even very
There would be no bounds to actions remote causation may be found where
and litigious intricacies if the ill effects the defendant acted intentionally.
of the negligence of men may be
followed down the chain of result to the Id. at 609 (emphasis added).
final effect. Cases where fraud and
collusion are alleged and proved 2. The Counties' Injuries Are Closely
constitute exceptions to that rule . . . . Connected to Defendants' Fraud
Buckley v. Gray, 110 Cal. 339, 344, 42 P. 900 (1895) In cases involving intentional torts, the
(citations omitted, emphasis added). causation inquiry is primarily factual and turns on
several factors: (1) the defendant's intent to cause
More recently, in Bily v. Arthur Young & Co., harm; (2) the degree of moral culpability; (3) the
3 Cal. 4th 370, 11 Cal. Rptr. 2d. 51 (1992), the seriousness of the harm intended; and (4) the
relationship between the harm intended and the harm
As the court explained in Maupin v. Widling, 192 Cal. App. 3d 568, actually caused. See e.g., Tate, supra, 180 Cal. App.
237 Cal. Rptr. 521 (1987), proximate cause differs from cause in 2d at 909 (liability for unintended harm imposed where
fact: "Proximate cause asks the larger, more abstract question:
should the defendant be held responsible for negligently causing defendant intended to cause injury and the injury
the plaintiff's injury? Whether a defendant's conduct is an actual intended was a substantial factor in causing the
cause of a plaintiff's harm is a question of fact, but the existence ultimate unintended harm); Lacher, supra, 230
and extent of a defendant's liability is a question of law and social
policy." Id. at 573 (citations omitted, emphasis added). Cal.App.3d at 1048 (liability imposed in part because
of moral blameworthiness and need to deter deceit); causation in intentional torts, moral blameworthiness is
accord, Seidel v. Greenberg, 108 N.J. Super. 248, 260 often paramount and generally tips the balance against
A.2d 863 (1969) (liability for unintended harm any objection of remoteness or indirectness of injury:
imposed because of intention to commit wrongful act,
high degree of moral blameworthiness and seriousness The moral element is here the factor that
of harm that was intended). As stated in the has turned close cases one way or the
Restatement (Second) of Torts § 435B, when a person other. For an intended injury the law is
engages in intentional conduct that invades the astute to discover even very remote
protected interests of another, "his intention to commit causation . . . . The decisions do not
an invasion, the degree of his moral wrong in acting, turn on remoteness of causation alone,
and the seriousness of the harm which he intended are but upon such remoteness plus freedom
important factors in determining whether he is liable from moral fault.
for resulting unintended harm."
Derosier v. New England Telephone & Telegraph Co.,
In Seidel, supra, 108 N.J. Super. 248, the 81 N.H. 451, 463-64, 130 A. 145 (1925). As one court
court relied on Tate and other authorities to distill the observed in rejecting summary judgment in a case
considerations relevant to causation in intentional torts: involving an auto part that the defendant allegedly
knew to be defective:
It is well settled that where the acts of a
defendant constitute an intentional tort The court should not look for ways to
or reckless misconduct, as distinguished protect people from the consequences of
from mere negligence, the aggravated intentional, malicious, wanton and
nature of his acts is a matter to be taken oppressive actions which so significantly
into account in determining whether affect life and death. Such questions are
there is a sufficient casual relation to the stuff for which trial by jury is
plaintiff's harm to make the actor liable designed.
therefore. His intention to commit a
wrongful act, the degree of his moral Martin v. Smith, 534 F. Supp. 804, 807 (W.D.N.C.
wrong in acting, and the seriousness of 1982).
the harm which he intended are
important factors in determining Similarly, in Bily v. Arthur Young, supra, 3
whether he is liable for resulting Cal. 4th at 415, the California Supreme Court stressed
unintended harm. the factor of moral culpability:
*** [T]he liability of auditors to third parties
presents different policy considerations
In [cases of intentional or aggravated when intentional fraud is involved. The
acts,] the court can only seek to draw secondary position of the auditor in the
upon such precedents as are available, presentation of financial statements, the
applying the rules of causation with moral force of the argument against
greater liberality than would be justified unlimited liability for mere errors or
in a conventional negligence case. oversights and the uncertain connection
Foreseeability, as such, is not the test. between . . . losses and the auditor's
If, weighing the moral fault of a report pale as policy factors when
defendant and applying the rules of intentional misconduct is in issue. By
causation liberally, the consequences joining with its clients in an intentional
have some reasonably close connection deceit, the auditor thrusts itself into a
with defendant's conduct and the harm primary and nefarious role in the
threatened, and in themselves, using transaction.
hindsight, are not deemed preposterous
or far-fetched, defendant should be held Bily, supra, 3 Cal. 4th at 415 (emphasis added, citation
liable. Concepts of policy, fairness and omitted); see also Potter v. Firestone, 6 Cal. 4th 965,
justice are entitled to great weight. 998, 25 Cal. Rptr. 2d 550 (1993) ("Any burden or
consequence to society from imposing liability is offset
Id. at 262, 267 (emphasis added). by the deterrent impact of holding morally
blameworthy defendants fully responsible for the
Among the factors the courts use to assess damages they cause. . . ."); Lacher, supra, 230 Cal.
App. 3d at 1048 (court noted the "definitive flavor of
immorality" and stated that "[i]mposing liability for Finally, not only was the harm intended
deceit in this context should prevent future harm"). severe, but the relationship between defendants'
See also 6 Witkin, Summary of California Law, Torts wrongdoing and the harm ultimately caused was
(9th ed. 1988), §1323, p. 781. foreseeable, foreseen and inevitable. Id., ¶¶ 221-224.
Defendants' fraud has created enormous public health
Not surprisingly, the tobacco defendants problems in California. Id., ¶ 224. The harm to
avoid any discussion of these factors, including moral smokers inevitably resulted in huge costs to the
culpability. But these conspicuous omissions fatally Counties, which are statutorily obligated to care for the
flaw their analysis of causation. All the factors used by indigent victims. Id., ¶ 201. The fact that indigent
the courts to determine liability to third parties smokers would become ill, requiring vast expenditures
demonstrate that the Counties' injuries from of public funds, was "'likely enough in the setting of
defendants' fraud are closely connected to defendants' modern life that a reasonably thoughtful [person]
wrongful conduct. would take account of it in guiding practical conduct.'"
Cicone v. URS Corporation, 183 Cal. App. 3d 194,
First, defendants fully intended to cause harm. 208, 227 Cal. Rptr. 887 (1986) (citation omitted). Put
They lied to the public and public health officials to another way, the connection between the harm to
create false doubt that smoking was dangerous and indigent County residents and the harm to the Counties
addictive. Com., ¶¶ 53-73; 122-167. They is, at a minimum, "reasonably close" and far from
manipulated nicotine to make their product more "preposterous or far-fetched." Seidel, supra, 108 N.J.
addictive, suppressed the development of safer Super. at 267. The Counties have stated a claim for
cigarettes and pretended that "light cigarettes" were fraud.
safer and less addictive. Id., ¶¶ 106-167. They knew,
based on their own secret research, that their lies would B. The Counties' Injuries Flow From A Statutory
cause disease and death. Id., ¶¶ 87-93; 122-135. Duty, Not a Contract
During their forty-year campaign of deception, they
have witnessed the awful consequences of their lies Defendants also ignore a second important
without wavering from their fraudulent scheme. Id., ¶¶ distinction between this case and the cases on which
86; 177. they rely. Here, defendants' tortious conduct injures
the Counties because the Counties have a statutory
Under California law, "'every person is obligation to provide care to their indigent ill. In cases
presumed to intend the natural and probable where the harm results from a legal duty to care for the
consequences of his acts.'" Gomez v. Acquistapace, 50 tort victim, courts hold that the claims are sufficiently
Cal. App. 4th 740, 1996 Cal. App. LEXIS 1018 (Oct. direct.
31, 1996) (quoting Lopez v. Surchia, 112 Cal. App. 2d
314, 318, 246 P. 2d 111 (1952)). A person who acts California Welfare and Institutions Code §§
willfully intends, as a matter of law, not only those 17000 et seq. imposes a legal duty on all California
consequences that he or she wishes to bring about, but counties to provide aid and relief, including health
also those consequences that are substantially certain care, to indigent residents. That statutory mandate and
to result. Gomez, supra, 1996 Cal. App. LEXIS at its predecessor have been in continuous effect since at
*10. Defendants intended the obvious consequences of least 1933. See Ten Broeck, "California's Welfare
their fraud: that millions of people, many of them Law -- Origins and Development," 45 Cal. L. Rev. 241
indigent, would become addicted to their product and (1957). Defendants specifically directed their false
suffer from smoking-caused illnesses, requiring the promises to those responsible for public health across
Counties to pay for their medical care. the nation, including the Counties. See e.g., Com. ¶64.
They had actual or imputed knowledge of the
Second, the degree of moral blameworthiness Counties' legal obligation and therefore knew the harm
is extreme. Defendants have blatantly lied to the their fraud would cause the Counties.
public and public health officials for over four decades.
They have conspired secretly together, corrupted Yet defendants rely on cases where, markedly
scientific research, manipulated nicotine delivery to unlike here, the plaintiffs are private insurers or others
ensure addiction, and even threatened a former who have voluntarily contracted for private gain to
employee who sought to reveal the truth. Com., ¶ 200. bear the consequences of injury to third parties.
And they have focused their deceptive marketing Plaintiffs in those cases allege only that the
tactics on vulnerable adolescents in order to addict performance of their contract was made more
them to cigarettes, all in pursuit of corporate profit at burdensome by a tort committed against a third party,
the expense of the public health. Id., ¶¶ 182-192. without any intent to affect the plaintiff. (Indeed, in
almost all those cases, the defendant had no intent to allow private parties like insurers to re-allocate to
harm anyone, but was merely negligent.) In such negligent tortfeasors the economic consequences of
circumstances, courts generally hold the injury too contractual obligations. None of these considerations
remote. In Justice Holmes' formulation, "A tort to the applies here.
person or property of one man does not make the tort-
feasor liable to another merely because the injured Significantly, as with Fifield Manor, all of the
person was under a contract with that other unknown California authorities on which defendants rely are
to the doer of the wrong." Robins Dry Dock & Repair distinguishable based on one or both of these factors:
Co. v. Flint, 275 U.S. 303, 309, 48 S. Ct. 134, 72 L. (1) contractual versus legal duties, and (2) negligent
Ed. 290 (1927) (emphasis added). versus intentional torts. See e.g., I. J. Weinrot and
Son, Inc. v. Jackson, 40 Cal. 3d 327, 220 Cal. Rptr.
By contrast, courts recognize that where the 103 (1985) (action by employer for medical expenses
plaintiff has a legal duty to care for an injured third incurred treating injuries to employee caused by
party, the injury to the plaintiff is sufficiently direct. defendant's negligence); Fischl v. Paller & Goldstein,
For example, in Follansbee v. Benzenberg, 122 Cal. 231 Cal. App. 3d 1299, 282 Cal. Rptr. 802 (1991)
App. 2d 466, 265 P.2d 183 (1954), the court held that (action by employer to recover damages for negligent
a wife could sue the tortfeasor who negligently injured harm to employee); Herrick v. Superior Court, 188
her husband. The wife sought to recover medical Cal. App. 3d 787, 233 Cal. Rptr. 675 (1987) (suit by
expenses incurred by her husband that she was employer for injuries to employee based on defendant
obligated by statute to pay. In light of this legal duty, motorist's alleged recklessness); Von Batsch v.
the court concluded that "[p]laintiff's loss arose American District Telegraph Co., 175 Cal. App. 3d
directly from the tort of the defendants." Id. at 477 1111, 222 Cal. Rptr. 239 (1985) (action by widow and
(emphasis added). employer based on employer's contract with burglar
alarm company for negligence). Notably, in both
Defendants rely heavily on Fifield Manor v. Weinrot and Herrick, the courts explicitly recognized
Finston, 54 Cal. 2d 632, 7 Cal. Rptr. 377 (1960). That that the result would have been otherwise had the
case held that the plaintiff nursing home, which defendant acted with intent to do injury. Weinrot,
incurred increased medical costs pursuant to its life supra, 40 Cal. 3d at 340-341; Herrick, supra, 188 Cal.
care contract with a person injured by a negligent App. 3d at 791-92; accord, Fifield Manor, supra, 54
driver, could not sue the driver. However, the Cal. 2d at 635-36 ("[C]ourts have quite consistently
California Supreme Court specifically distinguished refused to recognize a cause of action based on
this indirect injury, which was merely incidental to the negligent, as opposed to intentional, conduct which
contract, from the direct injury in Follansbee: interferes with the performance of a contract between
third parties or renders its performance more expensive
The analogy which plaintiff attempts to or burdensome.").
draw between this case and Follansbee
v. Benzenberg must fail because the Defendants also rely on inapposite out-of-
wife's recovery in Follansbee depended state authorities, especially Anthony v. Slaid, 52 Mass.
upon familial status and the duty of (11 Met.) 290 (1862). Anthony is distinguishable
support of her husband imposed upon because the plaintiff there was harmed "not by means
her by statutory law (Civ. Code §§ 171, of any natural or legal relation between the plaintiff
176) while plaintiff's claim for recovery and the party injured" but instead "by means of the
is based solely upon a contractual special contract by which [the plaintiff] had
liability between itself and the decedent. undertaken to support the town's paupers." Anthony v.
Slaid, 52 Mass. at 291 (emphasis added). Because the
Fifield Manor, supra, 54 Cal. 2d at 637 (emphasis injury to the plaintiff was only by reason of the
added). contract (of which the tortfeasor had no reason to be
aware), the court found the damage too remote.
The reason for this distinction is apparent.
Contractual obligations arise by voluntary agreement. Defendants quote dicta in Anthony expressing
Each party is free to weigh the foreseeable risks and concern about what would happen if, when "injury is
benefits of the contract before accepting its terms. If done to the person or property of the town pauper, . . .
certain terms seem too risky, a party may choose not to the town might maintain an action . . . for damages."
accept or to charge a higher price to bear the risk. Dicta in an out-of-state case decided 150 years ago is
Insurers may adjust their premiums or refuse to insure; not controlling, particularly when it conflicts with
employers may bargain over employee benefits or California authorities recognizing that the outcome
adjust their hiring. Accordingly, the courts do not should be different when the plaintiff's obligation is
statutory. Even in Massachusetts, subsequent cases asserted in the present action. (A list of the cases and
have strictly limited Anthony to circumstances where claims alleged in each case is attached to the Nelson
the harm to the plaintiff arises from a private contract Declaration as Exhibit A.) In only three of those cases
unknown to the tortfeasor and where the tortfeasor had have courts ruled on the tobacco defendants' motions
no intent to harm or design to accomplish its end to dismiss the legal and equitable claims asserted by
regardless of the harm to others. See Dennis v. Clark, the public entity plaintiffs. Mike Moore, Attorney
2 Cush. 347, 354-55 (1848); Keene Lumber Co. v. General ex rel., State of Mississippi v. American
Leventhal, 165 F.2d 815, 822-823 n.5 (1st Cir. 1948); Tobacco Co., No. 94-1429 (Chancery Court, Jackson
see also Chelsea Moving and Trucking Co. v. Ross County, Mississippi); State of Minnesota, et al. v.
Tow Boat Co., 280 Mass. 282, 286, 182 NE 477 Philip Morris, Inc., No. C1-94-8565 (Second Judicial
(1932) (liability would result had the plaintiff alleged District, Ramsey County, Minnesota); State of Florida,
that defendant knew of the contract, had malice toward et al. v. American Tobacco Co., No. CL-95-1466AH
the employer "or toward anybody" or had a "deliberate (Fifteenth Judicial Circuit, Palm Beach County,
design . . . to accomplish a definite end regardless of Florida).
consequences to others." (emphasis added).5
Defendants selectively highlight portions of
Here, defendants perpetrated their fraud two of these other states' decisions to support their
knowing of the Counties' long-standing legal obligation argument that the Counties do not have a direct right of
to care for their indigent ill. The Counties have stated action. Deft. Mem. at 23 (discussing Florida and
a claim for fraud. Minnesota actions). But neither decision cited by
defendants dismissed all the claims of the public entity
C. Recent Decisions In Similar Cases Against The plaintiff -- the very action defendants ask this Court to
Tobacco Companies Support The Counties' take. Defendants simply ignore altogether the
Claims Mississippi court's decision. In fact, every cause of
action advanced by the States of Minnesota and
At least 18 states and the City of New York Mississippi survived a motion to dismiss or motion for
have filed actions against the tobacco defendants judgment on the pleadings. Moreover, in Florida, the
premised upon factual and legal claims similar to those State's negligence and product defect claims, as well as
their claims for injunctive relief, survived defendants'
motion to dismiss.
Nor do the other ancient foreign cases to which defendants cite
support a different conclusion. The eighteenth and nineteenth
century cases predate the development of the torts of intentional In the Mississippi action, the State alleged
interference with contractual relations and have been superseded.
See London Assurance Co. v. Salisbury, 3 Doug. 245 (KB 1783);
equitable claims for restitution, unjust enrichment and
Tayler v. Neri, 1 Esp. 386, 170 Eng. Rp. 393 (1795); Rockingham indemnity to recover the medical costs expended for its
Mutual Fire Insurance Co. v. Bosher, 39 Me. 253 (1855); Insurance indigent citizens who suffer smoking-related injuries.
Co. v. Brame, 95 U.S. 754, 24 L. Ed. 580 (1878). All but one of
defendants' other cases involve claims of negligence and harm Defendants moved for judgment on the pleadings,
incidental to a contract. Rockaway Blvd. Wrecking and Lumber Co. arguing that the State was limited to subrogation. See
v. Raylite Electric Corp., 26 A.D. 2d 9, 269 NY 2d 926 (1966); Nelson Decl., Exhibit B (Mississippi defendants'
Economy Auto Insurance Co. v. Brown, 334 Ill. App. 579, 79 N.E.
2d 854 (1948); Stevenson v. East Ohio Gas Co., 73 N.E. 200 (Ohio memorandum in support of their motion). The trial
App. 1946); Northern States Contracting Co. v. Oakes, 191 Minn. court overruled their motion, allowing the State to
88, 253 N.W. 371 (Minn. 1934); Thompson v. Seaboard Airline Ry,
165 N.C. 377, 81 S.E. 315 (N.C. 1914); La Societé Anonyme de
proceed to trial on all of its equitable claims. See
Remorquage a Helice v. Bennetts, 1 K.B. 243 (K.B. 1910); Brink v. Nelson Decl., Exhibit C (Chancery Court's February
Wabash R. Co., 160 Mo. 87, 60 S.W. 1058 (1901); Cattle v. 21, 1995 Judgment).
Stockton Water Works Co., 10 L.R.-Q.B. 453 (Q.B. 1875); Peoria
Marine & Fire Insurance Co. v. Frost, 37 Ill. 333 (1865); and
Connecticut Mutual Life Insurance Co. v. New York and New The Minnesota action was brought by both
Haven Rail Road Co., 25 Conn. 265 (1856). Philadelphia v.
Philadelphia Rapid Transit Co., 337 Pa. 1, 10 A.2d 434 (1940),
the State of Minnesota and Blue Cross and Blue Shield
involved a negligent tort that harmed the City's employees for which of Minnesota ("Blue Cross"). The tobacco defendants
the city sought recovery. Although the court refers to the City's moved to dismiss Blue Cross for lack of standing.
legal duty, the harm actually flowed from the contractual
employment relationship. They also moved to dismiss the claims for breach of a
special duty and for antitrust violations asserted by
Moreover, several of defendants' cases expressly state that the
outcome with respect to the issue of causation would have been
both the State and Blue Cross. The trial court denied
different if the case involved intentional misconduct rather than all of these motions. See Nelson Decl., Exhibit D (a
negligence. Economy Auto Insurance Co. v. Brown, 334 Ill. App. copy of the Minnesota trial court's May 19, 1995
579, 79 N.E. 2d 854, 856 (Ill. App. 1948); Thompson v. Seaboard
Airline Railroad, 165 N.C. 377, 81 S.E. 315, 316 (1914); Brink v. Order). The court held that the State adequately
Wabash Rail Co., 160 Mo. 87, 60 S.W. 1058, 1060 (1901); Cattle v. alleged a claim for breach of a specially undertaken
The Stockton Waterworks Co., 10 L.R.-Q.B. 453, 458 (Q.B. 1875);
and Connecticut Mutual Life Insurance Co. v. New York and New
duty. Id. at 9-10. The court found that the intentional
Haven Railroad Co., 25 Conn. 265, 276 (1856). nature of the alleged conduct was sufficient to
demonstrate the breach of a legal duty. Id. Defendants recovery. Therefore, on remand, the trial court erred in
appealed the ruling with respect to plaintiff Blue Cross. concluding that the Supreme Court made any judgment
Significantly, they did not even try to overturn the regarding common law claims. In any case, the trial
ruling allowing the State's claims to proceed. court allowed the State's causes of action for
negligence and product defect, as well as its claims for
On appeal, the Supreme Court of Minnesota injunctive relief, to proceed.
held that Blue Cross lacked standing to pursue a claim
for breach of a special duty. State of Minnesota v. In all three actions then, the governmental
Philip Morris, 551 N.W.2d 490, 1996 Minn. LEXIS plaintiffs either completely or substantially prevailed
497 (1996). The court relied on Northern States on their legal and equitable claims. This Court should
Contracting Co. v. Oakes, 191 Minn. 88, 253 N.W. allow the Counties' claims as well.
371 (Minn. 1934), in which a plaintiff employer was
denied recovery of increased insurance premiums D. Allowing The Counties to Proceed Will Not
against a third party tortfeasor who negligently caused Lead to Unlimited Liability
the death of plaintiff's employee. State of Minnesota,
supra, 1996 Minn. LEXIS at *13-*15. The tobacco defendants attempt to alarm the
Court by suggesting that if it were to allow the
The Court's ruling on Blue Cross is readily Counties to proceed in this case, there would be no
distinguishable. First, the decision involved a private limit to liability in other cases. Offering a parade of
insurer, not a public entity statutorily obligated to pay horribles, defendants ask, "If the Counties can recover,
for the health care costs of its indigent residents. then why can't insurers recover? Or employers? Or
Second, the Minnesota Supreme Court treated Blue business partners? Or creditors, for that matter? And
Cross' action as sounding in negligence; here, the if the Counties can recover from the tobacco
Counties allege intentional torts. Just as Fifield Manor companies, then why would they not be able to recover
is inapplicable to the Counties' allegations, so, too, is from anyone else who is alleged to have harmed the
Northern States Contracting. Third, Blue Cross' claim Counties' indigents and municipal employees? . . ."
for breach of special duty was undermined by the fact Deft. Mem. at 21.
that the tobacco companies did not make any
affirmative promises to Blue Cross but only to "public The answer is simple. It lies in the specific
health authorities"; the Court therefore held that the facts and circumstances that give rise to the Counties'
insurance company did not have standing to assert the claims. Liability exists where, as alleged here, (1)
special duty claim. State of Minnesota, supra, 1996 defendants have engaged in a scheme to defraud the
Minn. LEXIS at *14-*15. Fourth, the Court based its public and those charged with safeguarding the public
ruling on Minnesota's law of negligence. As set forth health about the adverse consequences of using their
in Part II infra, the Counties have stated a claim for product (2) after defendants expressly assumed a duty
both intentional and negligent breach of a special to protect those same groups from such harm, and
undertaking under California law. where (3) defendants' intentional conduct is morally
repugnant in that it involves addicting young people to
Nor does the Florida court's opinion support a product that causes disease and death, and (4) the
defendants. In Agency for Health Care Administration serious harm their conduct causes to the Counties is
v. Associated Industries of Florida, 678 So. 2d 1239, foreseeable in light of the Counties' statutory
1996 Fla. LEXIS 1057 (1996), the Florida Supreme obligations to the public. Few other such situations are
Court considered the constitutionality of 1994 likely to arise, but for those that do, the law should
amendments to the State's Medicaid law. These provide a remedy.
amendments (in combination with the 1990
amendments) clarified the State's ability to bring a II.
direct cause of action against third party tortfeasors
and made other changes designed to streamline the THE COUNTIES STATE CLAIMS FOR
State's recovery of its medical costs. Id. INTENTIONAL AND NEGLIGENT VIOLATION
OF SPECIALLY ASSUMED DUTIES
Although the issue in Associated Industries
was the constitutionality of these Medicaid Count IV of the Complaint alleges that
amendments, the tobacco defendants rely on the case defendants intentionally and negligently breached
for the proposition that the State had no preexisting duties defendants specially assumed to the Counties
common law right of recovery. Deft. Mem., at 24. and to the public. Defendants barely even address
However, nowhere in Associated Industries did the these claims. Regarding the intentional breach,
Court consider the State's common law rights of defendants' arguments fail for the same reason that
their arguments fail with respect to the Counties' fraud (1969) (publisher of Good Housekeeping magazine
and conspiracy claims: The law on which they rely liable to third party consumer who relied on
applies only to negligent torts. Regarding the negligent endorsement of manufactured product); see also
breach, defendants simply ignore the rule that United Scottish Ins. v. United States, 692 F.2d 1209
California courts apply to such actions. (9th Cir. 1982), rev'd on other grounds, 467 U.S. 797,
104 S. Ct. 2755, 81 L. Ed. 2d 660 (1984) (by
A. Defendants Intentionally Breached The Duties undertaking duty to airline to inspect aircraft for safety,
They Assumed governmental agency assumed liability to passengers);
Restatement (Second) of Torts, § 324A.6 Although the
To state a claim for the breach of a specially law of special duty developed in connection with
assumed duty, a plaintiff must plead (1) that the claims of negligence, the intentional breach of a legal
defendant undertook to act for the benefit or protection duty provides an even stronger basis for liability. See
of the plaintiff, (2) that the defendant failed to do so, American Employer's Insurance Co. v. Smith, 105 Cal.
and (3) that the defendant's breach of the assumed duty App. 3d 94, 101, 163 Cal. Rptr. 649 (1980) (rejecting
either (a) increased the risk of harm to the plaintiff or claim that the defendant "should be exonerated from
(b) the plaintiff suffered injury because of reliance liability because his [intentional] conduct was more
upon the undertaking. See Lacher v. Superior Court, culpable than the [negligence] required to establish
supra, 230 Cal. App. 3d at 1042 (developer that liability.")
voluntarily undertook duty to explain project to
neighbors held liable to them for misrepresentations In this case, the Complaint alleges that
that lulled neighbors into not opposing project); Mann defendants voluntarily assumed special duties by
v. State of California, 70 Cal. App. 3d 773, 780, 139 issuing the "Frank Statement to Cigarette Smokers":
Cal. Rptr. 82 (1977) (reversing directed verdict for
highway patrol officer who undertook special duty to We accept an interest in people's health
protect stranded passenger). As the court in Mann as a basic responsibility, paramount to
stated: every other consideration in our
[O]nce a [defendant] has chosen to
investigate the plight of specific persons We always have and always will
and informed himself of the foreseeable cooperate closely with those whose task
danger to them . . . , a special it is to safeguard the public health.
relationship requiring him to protect
them by readily available means arises We are pledging aid and assistance to
and liability may attach if the the research effort into all phases of
[defendant's] limited duty to protect tobacco use and health.
these people under these special
circumstances is not performed. Com., ¶ 64. Later, defendants published "A Statement
About Tobacco and Health":
We recognize that we have a special
Alternatively, a party may state a claim by responsibility to the public -- to help
pleading (1) that the defendant undertook to act for the scientists determine the facts about
benefit or protection of a third party, (2) that the tobacco and health, and about certain
defendant failed to do so, (3) that the defendant should diseases that have been associated with
have recognized that the undertaking was necessary to tobacco use. We accepted this
protect the plaintiff's interests, and (4) that either (a) responsibility in 1954 by establishing
the defendant's breach increased the risk of harm to the the TIRC…. We shall continue all
plaintiff, (b) the defendant undertook to perform a duty possible efforts to bring the facts to
owed by the plaintiff to the third party, or (c) that the light.
harm was suffered because of reliance upon the
undertaking by the plaintiff or the third party. FNS Id., ¶ 75 (emphasis supplied); see also id., ¶¶ 76-82,
Mortgage Service Corp. v. Pacific General Group,
Inc., 24 Cal. App. 4th 1564, 1567, 29 Cal. Rptr. 2d The Restatement speaks in terms of physical injury or damage,
but economic harm is also clearly recoverable under California law.
916 (1994) (association that undertook duty to inspect See, e.g., J'Aire Corp. v. Gregory, 24 Cal. 3d 799, 805, 157 Cal.
and certify safety of pipe for industry held liable for Rptr. 407 (1979), Ales-Peratis Foods Internat. v. American Can
breach to third party consumers of pipe); Hanberry v. Co., 164 Cal. App. 3d 277, 287, 209 Cal. Rptr. 917 (1985), Walnut
Creek Aggregates Co. v. Testing Engineers, 248 Cal. App. 2d 690,
Hearst Corp., 276 Cal. App. 2d 680, 81 Cal. Rptr. 519 56 Cal. Rptr. 700 (1967).
93. Over the years, the defendants have re-affirmed As Justice Cordozo wrote in Glanzer v. Shepard, 233
these undertakings in various ways. See id. N.Y. 236, 239, 135 N.E. 275 (N.Y. 1922), "One who
assumes to act, even though gratuitously, may thereby
In making these commitments, defendants become subject to the duty of acting carefully, if he
assumed duties to both the Counties and to the public acts at all."
in general. As to the Counties and their public health
departments, defendants specifically pledged to Paragraphs 226 to 230 of the Complaint plead
"cooperate closely with those whose task it is to each of the elements of a claim for negligent breach of
safeguard the public health." Id., ¶ 64. As to the the duties specially undertaken. Defendants do not
public, defendants specifically undertook "a special contend that those elements are inadequately pleaded.
responsibility to the public" and "accept[ed] an interest Instead, the tobacco defendants merely repeat the
in people's health as . . . paramount to every other mantra of "remoteness." Yet they never discuss the
consideration in [their] business." Id. applicable rule that California's courts have adopted
for resolving cases where remoteness is asserted in the
In accepting these responsibilities, defendants context of a specially assumed duty.
undertook three specific duties. First, by committing
themselves to making the people's health their In Connor v. Great Western Sav. & Loan
preeminent responsibility, the tobacco companies Assn., 69 Cal. 2d 850, 73 Cal. Rptr. 369 (1968), Chief
agreed that they would not sell or continue to sell Justice Traynor set out the multi-factor analysis
products which they knew to cause death and disease applicable in cases involving an assumed duty:
when used as intended. The violation of this specially
assumed duty is the direct cause of the costs incurred 'Privity of contract is not necessary to
by the Counties in treating the illnesses that resulted establish the existence of a duty to
from defendants' sales of cigarettes. exercise ordinary care not to injure
another, but such duty may arise out of a
Second, defendants pledged to cooperate with voluntarily assumed relationship if
those responsible for safeguarding the public's health. public policy dictates the existence of
In fact, they did the opposite. See Com., ¶¶ 66-82. such a duty.' (Citations.) The basic
tests for determining the existence of
Third, regardless of whether the tobacco such a duty are clearly set forth in
companies had any duty to speak publicly on the Biakanja v. Irving, supra, 49 Cal.2d
subject, having repeatedly undertaken to do so, they 650, as follows: 'The determination
were legally bound to speak the full and complete whether in a specific case the defendant
truth. Bank of America v. Greenbach, supra, 98 Cal. will be held liable to a third person not
App. 2d at 232. Not only did defendants willfully fail in privity is a matter of policy and
to perform this duty; they actively conspired to involves the balancing of various
conceal, suppress and distort the scientifically factors, among which are  the extent
established facts that they knew. to which the transaction was intended to
affect the plaintiff,  the foreseeability
Defendants do not argue that the Counties of harm to him,  the degree of
have failed to plead adequately the elements of their certainty that the plaintiff suffered
claim for the intentional breach of a special injury,  the closeness of the
undertaking. Defendants contend only that the connection between the defendant's
Counties' injuries are so remote or derivative that they conduct and the injury suffered,  the
were not proximately caused by defendants' conduct. moral blame attached to the defendant's
For the reasons set forth above, this contention, based conduct, and  the policy of preventing
as it is on the law of negligence, has no bearing on the future harm.'7
Counties' claims for intentional breach of specially
assumed duties. Id. at 865 (emphasis added).
B. Defendants Negligently Breached The Duties All of the modern California cases involving
They Assumed an allegation of a specially assumed duty apply the test
derived from Biakanja to determine whether a
The Complaint also asserts that defendants
negligently breached the duties defendants assumed In applying these factors, California courts "are influenced more
toward the Counties and the public when defendants by public policy than they are by whether such cause of action can
be comfortably fitted into one of the law's traditional categories of
issued the Frank Statement and related publications. liability. Hanberry, supra, 276 Cal. App. 2d at 683.
defendant is liable to an allegedly remote party. See, Fifth, as described in Part I above, defendants'
e.g., FNS Mortgage, supra, 24 Cal. App. 4th at 156; conduct is morally reprehensible. The tobacco
Walnut Creek Aggregate Co. v. Testing Engineers, defendants undertook a duty to protect the public's
Inc., supra, 248 Cal. App. 2d at 695; Lacher v. health by supporting independent research into the
Superior Court, supra, 230 Cal. App. 3d at 104. As safety of tobacco, disclosing the results of that
the Supreme Court of California stated in J'Aire Corp. research, and refraining from marketing products they
v. Gregory, 24 Cal. 3d 799, 808, 157 Cal. Rptr. 407 knew would cause disease and death. Meanwhile,
(1979), "[t]hese factors and ordinary principles of tort defendants suppressed the results of research
law are fully adequate to limit recovery" and to answer demonstrating that smoking caused death and disease
"fears . . . that liability will be imposed for remote and continued to sell products they knew caused death
consequences . . . ." Id. at 808 (emphasis added). and disease, while at the same time altering their
products to make them more addictive and halting the
The Biakanja v. Irving, 49 Cal. 2d 647, 320 development of safer cigarettes.
P.2d 16 (1958), factors compel the conclusion that the
Counties have stated a claim. First, the "Frank Sixth, the preventive policy that underlies tort
Statement" was intended to affect the Counties: law calls for imposition of liability. Holding
defendants pledged to cooperate with "those defendants liable will deter their breach of duty in the
responsible for the public health." Com., ¶ 64. future by forcing defendants and others to consider
Defendants also stated that the public's health was their carefully the connection between their public
preeminent concern, of greater concern even than their pronouncements and their conduct.8
own profits. Id. Defendants further pledged to support
research by independent scientists and to share the Given California's long line of cases applying
results. Id. Each of these undertakings was designed, the Biakanja factors where a defendant has undertaken
among other purposes, to cause governmental officials a specific duty, defendants' reliance on Fifield Manner,
to believe that immediate action on their part to curb supra, 54 Cal. 2d 632, fails. Fifield Manner involved
smoking was not needed. Judicially noticeable no such undertaking. As the California Supreme Court
evidence in the form of local legislation shows that, as stated in J'Aire, the defendant in Fifield Manor "had
the evidence mounted as to the hazards of smoking, not entered into any relationship or undertaken any
governmental entities began to legislate various activity where negligence on his part was reasonably
controls on smoking and advertising. Defendants' likely to affect plaintiff adversely." J'Aire, supra, 24
conduct was designed to lull the Counties, among Cal. 3d at 807; accord, Chameleon Engineering Corp.
others, to avoid such regulation. v. Air Dynamics, Inc, 101 Cal. App. 3d 418, 423, 161
Cal. Rptr. 463 (1980). Moreover, the Court in J'Aire
Second, defendants reasonably should have questioned the continuing validity of Fifield Manor
foreseen the risk of harm to the Counties. Physical even outside the context of cases involving assumed
injury to cigarette smokers was not only foreseeable, it duties. J'Aire, 24 Cal. 3d at 807 n.4.
was contemplated as the inevitable consequence of a
breach of defendants' undertakings. With regard to Apparently recognizing J'Aire's applicability,
physical addiction, such injury was intended. defendants attempt to limit that case to its facts. Deft.
Defendants knew or should have known of the Mem. at 16 n.7. Yet defendants never come to grips
Counties' statutory obligations to care for indigent with the settled rule that it and many other cases
residents who suffered the ill effects of smoking. establish: the incantation of the phrase "remote
Third, the Counties have suffered injury. The 8
The only court to have held the "Frank Statement" insufficient to
Complaint alleges that the Counties have had to pay for establish liability did so at the summary judgment stage, when
satisfied that there was insufficient evidence to satisfy the elements
the health care of their indigent residents, and the costs of section 324A of the Restatement (Second) of Torts. See
plaintiffs seek to recover arise directly from Gunsalus v. Celotex Corp., 674 F. Supp. 1149, 1155-57 (E.D. Pa.
defendants' failure to perform properly the duties they 1987). Notably, that court did not apply California's Biakanja test,
which would have lead to a different result. In addition, the court
assumed. Id., ¶¶ 4-16, 203, 211, 220, 227, 235, 238, did not have before it the subsequently discovered disclosures and
243. documents detailing defendants' conspiracy and the means they
employed to pursue it. See, e.g., Glantz, et al., "Looking Through a
Keyhole at the Tobacco Industry: The Brown and Williamson
Fourth, the injuries suffered by the Counties Documents," 274 The Journal of the American Medical Association
are closely connected with defendants' conduct. The ("JAMA"), at 219-24 (1995); Glantz, et al., "Nicotine and Addiction:
The Brown and Williamson Documents," 274 JAMA at 225-33;
Complaint alleges that defendants' breach increased Glantz, et al., "Lawyer Control of the Tobacco Industry's External
substantially the costs of providing health care to the Research Program," 274 JAMA at 234-40. A copy of each of these
articles is attached as Exhibit E to the Nelson Declaration. In any
Counties' indigent residents who smoked. Id. event, defendants have not raised the argument upon which the
court in Gunsalus relied.
damages" does not work magic in California. (c) This section is
Application of the Biakanja test to the facts alleged in intended to be declarative of
the Complaint establishes the sufficiency of its and does not alter or amend
allegations. existing California law,
including Cronin v. J.B.E.
III. Olson Corp. (1972) 8 Cal. 3d
121, and shall apply to all
NEITHER CIVIL CODE § 1714. 45 NOR product liability actions
GOVERNMENT CODE § 230041 BAR pending on, or commenced
THE COUNTIES' CLAIMS after, January l, 1988.
A. Civil Code Section 1714.45 Does Not Immunize (Emphasis added).
the Defendants from Liability
Defendants contend that this statute bars the
Relying on American Tobacco Co. v. Counties' claims because they are based on "injury or
Superior Court , 208 Cal. App. 3d 480, 255 Cal. Rptr. death caused by a product" within the meaning of
280 (1989), defendants contend that California Civil section 1714.45(b). Deft. Mem. at 32. This action,
Code §1714.45 immunizes them from the Counties' however, is not one for "injury or death," and, even if it
claims. Among other reasons, the argument fails were, the Counties' injury was not "caused by a
because §1714.45 only applies to "product liability product."
actions" brought by consumers. This is an action
brought by governmental entities for fraud and for In using the words "any action for injury and
breach for assumed duties. death," the legislature plainly had in mind the ordinary
meaning of those words -- actions for personal injury.
1. This Is Not A Product Liability Action See O'Kane v. Irvine, 47 Cal. App. 4th 207, 54 Cal.
Rptr. 2d 549, 551 (1996) (courts construe the words in
Section 1714.45 provides as follows: a statute in light of their ordinary meaning).9 This
action is for purely economic injury.
(a) In a product liability action, a
manufacturer or seller shall not be liable Indeed, in a different context, a California
if: Superior Court has recently rejected the tobacco
companies' attempt to expand the reach of section
(1) The product is inherently unsafe 1714.45. Cordova v. Liggett Group, et al., No.
and the product is known to be 651824 (San Diego Superior Court, 10/30/86), Order
unsafe by the ordinary consumer on Demurrer/Motion to Strike (attached as Exhibit F to
who consumes the product with the Nelson Decl.). There, the tobacco companies argued
ordinary knowledge common to the that section 1714.45 barred a private attorney general
community; and action under California's false advertising statute. Cal.
Bus. & Prof. Code § 17200 et seq. The companies
(2) The product is a common asserted that as a matter of law, section 1714.45
consumer product intended for establishes that consumers cannot be deceived about
personal consumption, such as sugar, the harm caused by tobacco. The court disagreed,
castor oil, alcohol, tobacco, and using reasoning that applies here:
butter, as identified in comment i to
Section 402A of the Restatement Civil Code § 1714.45 precludes actions
(Second) of Torts. for injury and death caused by tobacco.
See American Tobacco Co. v. Superior
(b) For purposes of this Court (1989) 208 Cal. App. 3d 250,
section, the term "product 257. This case is not an action for
liability action" means any injury or death.
action for injury or death
caused by a product, except
that the term does not include
an action based on a That conclusion finds support in section 1714.45(a)(2), where the
statute refers to "sugar, castor oil, alcohol, tobacco, and butter,"
manufacturing defect or breach items of personal consumption that may produce personal injury.
of an express warranty. See, e.g., People v. Stout, 18 Cal. App. 3d 172, 177, 95 Cal. Rptr.
593 (1971) (courts resolve ambiguities in the words of statutes by
looking at the surrounding language and context).
Cordova, supra, at 2 (emphasis added). (Emphasis in italics original; emphasis in bold-face
added). Based on this distinction, the court dismissed
More fundamentally, even if section 1714.45 the plaintiffs' claims for emotional distress based on
applied outside the context of claims for personal product liability, but upheld her claims based on fraud.
injury, this is not an action for injury "caused by a See also Westlye v. Look Sports, 17 Cal. App. 4th
product." Rather, this action is for injuries caused by 1715, 1741-1750, 22 Cal. Rptr. 781 (1993) (classifying
dishonesty and the failure to fulfill commitments. The claims for products liability separately from claims
Counties state claims for fraud and for the violation of based on misrepresentation); 6 Witkin, supra, Torts,
assumed duties to cooperate with public health §§674 et seq., §§948 et seq., §§1241 et seq.
officials, to inform the public about research on (addressing liability for fraud in Chapter VI, separate
cigarettes, and to put health before profits. The injury from discussion in Chapters VII and IX of liability for
alleged is not an invasion of the right to safe products, defective products).
but an invasion of the rights to be dealt with honestly
and to have commitments performed. See Cipollone v. Similar reasoning underlies the Supreme
Liggett Group, Inc., 505 U.S. 504, 528-29, 112 S. Ct. Court's decision in Cipollone v. Liggett Group, Inc.,
2608, 120 L. Ed. 2d 407 (1992) (liability for fraud is supra, 505 U.S. 504. The plurality held that federal
based on a "general obligation -- the duty not to laws mandating warnings on cigarette packages did not
deceive"). In short, the cause of the harm here was the preempt state laws permitting recovery for fraud and
defendants' conduct, not their products.10 false advertising. The Court reasoned that the federal
statutes only preempted local laws allowing actions
The distinction between claims based on "based on smoking and health," and that liability for
dishonest conduct and claims based on defective fraud is predicated "on a more general obligation -- the
products is well established in California law. In Khan duty not to deceive." Id. at 528-29. Similarly, the
v. Shiley, 217 Cal. App. 3d 848, 855-58, 266 Cal. Rptr. Court found no preemption of claims for a breach of
106 (1990), the court stated: express warranty, based as they were on a voluntary
undertaking of the manufacturer. Id. at 525-26; accord,
Products liability is the name currently Mangini v. R.J. Reynolds Tobacco Co., 7 Cal. 4th
given to the area of law involving the 1057, 1068, 31 Cal. Rptr. 2d 358 (1994) (federal law
liability of those who supply goods or does not preempt California statute that protects
products for the use of others to minors from cigarette advertising.)
purchasers, users, and bystanders for
losses of various kinds resulting from These results are consistent with section
so-called defects in those products.' 1714.45(a)(2), which expressly refers to comment i of
(Prosser & Keeton, Torts (5th ed. 1984 Section 402A of the Restatement (Second) of Torts.
§95, p. 677.) Possible theories of Comment i explains that a manufacturer escapes
recovery include strict liability in tort, liability where the product is inherently unsafe, but is
negligence (i.e., in creating or failing to liable if the manufacturer's conduct adds to the danger
discover a flaw, in failing to warn or of a product.11 For example, Comment i states, "Good
failing adequately to warn, or in the sale tobacco is not unreasonably dangerous merely because
of a defectively designed product) and the effects of smoking may be harmful; but tobacco
breach of warranty (express and containing something like marijuana may be
implied). Allegations of fraud, however, unreasonably dangerous." Here, defendants are
are in a class by themselves… Unlike alleged to have added to the danger of cigarettes by
the other theories, in which the safety
and efficacy of the product is assailed, Courts have split on whether comment i even forecloses claims
by smokers for strict product liability. Compare, e.g., Burton v. R.J.
the fraud claim impugns defendants' Reynolds Co., 884 F. Supp. 1515 (D. Kan. 1995) ("Burton I") and
conduct. Rogers v. R.J. Reynolds Co., 557 N.E. 2d 1045, 1990 Ind. App.
LEXIS 952 (Ind. App. Court 1990) (denying summary judgment to
defendants on product liability) with Gunsalus v. Celotex Corp., 674
F. Supp. 1149 (E.D. Pa. 1987) and Paugh v. R.J. Reynolds
Tobacco Co., 834 F.Supp. 228 (N.D. Ohio 1993) (granting
This point also holds true for the Counties' claims that the summary judgment on product liability claims). Most of the cases
defendants breached their specially assumed duty to make safety correctly treat consumers' claims for product liability as distinct from
the companies' primary concern. Had defendants not undertaken their claims for fraudulent concealment and misrepresentation.
such an obligation (and not committed the other misconduct See, e.g., Burton I, supra, and Burton v. R.J. Reynolds Co., 916
alleged), section 1714.45) would protect them from liability for F.Supp. 1102 (D.Kan. 1996) (claim for fraudulent concealment was
marketing products that were inherently unsafe. Having publicly not preempted and was properly stated under state law); but see
committed themselves to safety, however, and having acted to Paugh v. R.J. Reynolds Tobacco Co., 834 F.Supp. 228 (N.D. Ohio
enhance the danger of their products, defendants invaded the 1993) (treating claim for fraudulent concealment as claim for failure
public's and the Counties' interests in truthfulness. That legal injury to warn under Ohio's defective product statute). None of these
was caused by conduct, not by products. cases address fraud claims by non-smokers.
deliberately enhancing the addictive quality of
nicotine. Com., ¶¶ 50, 122-167. Thus, section Plaintiffs' Complaint alleges conduct hardly
1714.45 does not protect defendants from liability less culpable. Defendants here falsely denied the
caused by their altered product. addictive quality of tobacco while working feverishly
to make tobacco more addictive. Defendants pledged
Ignoring this and other critical allegations, to make safety their primary concern and then
defendants contend that the Counties' claims fail proceeded to alter their products to make them more
because they do not fall within the Legislature's two dangerous. The defendants promised that they would
specific exemptions from section 1714.45's protect the public's right to know about tobacco's safety
immunities. After defining the term "product liability and then buried their research on the causal link
action," section 1714.45(b) creates exceptions for any between tobacco, nicotine and death. In enacting
" action based on a manufacturing defect or  section 1714.45, the Legislature did not immunize such
breach of an express warranty." conduct.
In fact, these exceptions confirm that the American Tobacco Co. v. Superior Court,
Legislature intended to protect inherently unsafe 208 Cal. App. 3d 480 (1989), says nothing different.
products, but did not intend to immunize misconduct American Tobacco was a product liability case brought
by manufacturers. A breach of an express warranty is by consumers for personal injuries. The court held that
an affirmative misrepresentation about the product. A tobacco manufacturers were entitled to immunity under
manufacturing defect is a mistake in the manufacturing section 1714.45 without having to admit that cigarettes
process that adds to the product's danger. Yet both were dangerous or show that ordinary consumers knew
types of claims fall within the rubric of "product that tobacco products were inherently unsafe. The
liability actions." See, e.g., Barker v. Lull court had no occasion to consider whether section
Engineering, 20 Cal. 3d 413, 429, 143 Cal. Rptr. 225 1714.45 protected the industry from suits by
(1978) (manufacturing defect); Westlye v. Look Sports, governmental agencies for fraud and other intentional
supra, 17 Cal. App. 4th at 1748 (express warranty). misconduct.
Therefore, to exclude such misconduct from the reach
of section 1714.45 required an express exception. 2. Section 1714.45 Does Not Affect The
Counties' Equitable Claims
By contrast, while also involving misconduct,
allegations of fraud (or breach of an assumed duty) do Defendants' sweeping assertion that section
not fall within the rubric of product liability; they "are 1714.45 bars all the Counties' state law claims also
in a class by themselves." Khan, 217 Cal. App. 3d at ignores the basic distinction between the Counties' tort
857. Therefore, there was no need to name fraud as an claims and their equitable claims for restitution and
exception to section 1714.45's prohibition. unjust enrichment. The former claims are addressed to
the Court at law. The latter claims are addressed to the
Indeed, to interpret section 1714.45 as barring Court in equity. Because defendants miss this basic
the Counties' claims would undermine California's point, we state the obvious: section 1714.45 is based
well-settled public policy that holds private parties on the Restatement (Second) of Torts and follows the
accountable for deceit. See, e.g., Cal. Civ. Code §1668 Restatement's rationale regarding strict liability in tort.
("All contracts which have for their object, directly or
indirectly, to exempt any one from responsibility for Unlike actions at law which concern liability
his own fraud or willful injury to the property of for damages, "equity acts specifically; it grants specific
another . . . are against the policy of the law.") In relief and not damages." (emphasis in original). 11
effect, defendants argue that section 1714.45 drills a Witkin, Summary of California Law, § 2(b), p. 680
gaping hole in this policy: deceit is no longer (9th ed. 1990). The goal of equity is to restore the
actionable whenever it relates to inherently dangerous parties as nearly as possible to the status quo before
products.12 In other words, under defendants' argument, the fraud or other wrongful behavior occurred. See,
section 1714.45 would protect them from liability for e.g., Fletcher v. Security Pacific National Bank, 23
fraud even if they had told the public that cigarettes Cal. 3d 442, 153 Cal. Rptr. 28 (1979).
were safe while systematically adding cyanide to them.
Counts VI and VII of the Counties' Complaint
state claims for restitition and unjust enrichment. The
This interpretation runs counter to the basic rule of statutory
construction that the legislature does not intend "to overthrow long- Complaint prays for equitable relief, including
established principles of law unless such intention is made clearly requiring defendants to disclose their research on
to appear either by express declaration or by necessary smoking, addiction and health, as defendants
implication." County of Los Angeles v. Frisbe, 19 Cal. 2d 634, 644,
122 P. 2d 526 (1942) (citations omitted). specifically said they would. The Counties also seek
restitution. These are equitable claims and remedies. warranty.13
Even though restitution involves monetary
compensation, it is analytically and legally distinct 4. Section 1714.45 Does Not Apply to
from liability for damages and does not convert an CTR and the Tobacco Institute, Which
equitable claim into a legal one. Bowen v. Are Not Manufacturers
Massachusetts, 487 U.S. 879, 893, 108 S. Ct. 2722,
101 L. Ed. 2d 749 (1988). Finally, even if defendants' arguments
generally had merit, which they do not, the arguments
In short, section 1714.45 only addresses tort would fail as to defendants CTR and the Tobacco
liability in actions at law. The statute has no bearing Institute. Section 1714.45 protects manufacturers and
on the County's equitable claims. sellers. Cal. Civ. Code § 1714.45(A) ("In a product
liability action, a manufacturer or seller shall not be
3. Section 1714.45 Permits the Counties' liable if …") (emphasis added). CTR and the Tobacco
Express Warranty Claim Institute are industry-sponsored lobbying organiza-
tions. See, e.g., Com., ¶¶ 25-26. Therefore, section
Defendants concede that a claim for breach of 1714.45 has no application to these two defendants.
express warranty is not barred by section 1714.45.
They also concede that privity is not required. B. Government Code § 23004.1 Is Cumulative,
However, they argue that only consumers or users may Not Exclusive
bring this claim. Their sole authority is BAJI Nos.
9.40 and 9.43 (8th ed. 1996). BAJI, in turn, refers to Defendants also argue that California
California Commercial Code § 2103(1). But § 2103(1) Government Code § 23004.1 limits the Counties to a
does not purport to limit express warranty claims. right of subrogation. This argument also fails for
Instead, it simply adopts the definition of buyer and several reasons.
seller in the Uniform Commercial Code ("UCC").
First, far from limiting the Counties to a right
California, however, has not adopted any of of subrogation, the statute actually adds a direct right
the three alternatives proposed by the UCC that of action to Counties to recover medical costs from
addressed the subject of who may bring express tortfeasors who injure their residents. Section 23004.1
warranty claims. See UCC 12-318. California provides in relevant part that whenever a county
declined to adopt even the most liberal alternative provides health care to a person injured by a tortfeasor:
provision, which provided that "[a] seller's warranty
whether express or implied extends to any person who the county shall have a right to recover
may reasonably be expected to use, consume, or be from said third person the reasonable
affected by the goods and who is injured by breach of value of the care and treatment so
the warranty.") (emphasis added). The Legislature did furnished . . . or shall, as to this right, be
not adopt the UCC provisions because it viewed them subrogated . . . .
as too restrictive compared to existing California law.
3 Witkin, Summary of California Law, Sales, § 95 (9th Cal. Gov't Code § 23004.1 (a) (emphasis added). 14
Second, section 23004.1 does not supplant the
Moreover, in other situations where the right Counties' right to assert direct claims for fraud and
of non-users to sue has been challenged, the non-users violation of specially assumed duties. The general rule
have been allowed to proceed. For example, the is that "[i]f a right was established at common law or
California Supreme Court extended strict liability to by statute before the new statutory remedy was created,
injured parties who are neither consumers nor users. the statutory remedy is usually regarded as merely
Elmore v. American Motors Corp., 70 Cal. 2d 578,
586, 75 Cal. Rptr. 652 (1969). The Court explained 13
In any event, as defendants suggest, the Counties could always
that since bystanders, unlike consumers and users, have bring an express warranty claim under Government Code §
no opportunity to protect themselves from injury, "if 23004.1.
any distinction should be made between bystanders and Language similar to Government Code § 23004.1 in the Medical
Care Recovery Act ("MCRA") has been interpreted to give the
users, it should be made . . . to extend greater liability government a direct claim against the tortfeasor which is "not
in favor of the bystanders." Id. at 586. The same derivative, but an independent right of action." United States v.
Merrigan, 389 F. 2d 21, 24 (3d Cir. 1968). The statutory basis for
rationale applies to breach of warranty. There is, then, an independent right of action under Government Code § 23004.1
no basis to find that the Counties are barred as a matter is even more compelling than under MCRA. In section 23004.1, the
of law from pleading a claim for breach of express direct right and the right of subrogation are expressed in the
disjunctive; in the MCRA, the direct right of recovery and the right of
subrogation are expressed in the conjunctive.
cumulative, and the older remedy may be pursued at traceable to, and result directly from, the RICO-
the plaintiff's election." 3 Witkin, California violative conduct of defendants themselves.
Procedure § 8 at 9 (3d ed. 1985); see Federal Marine
Terminals v. Burnside, 394 U.S. 404, 410, 89 S. Ct. A. The Counties' Claims Satisfy RICO's Actual
1144, 22 L. Ed. 2d 371 (1969) ("The legislative grant and Proximate Causation Requirements
of a new right does not ordinarily cut off or preclude
other nonstatutory rights in the absence of clear Section 1964(c) provides "[a]ny person
language to that effect."); Rojo v. Kliger, 52 Cal. 3d injured in his business or property by reason of a
65, 79, 276 Cal. Rptr. 130 (1990) (same). 15 violation of section 1962" with a right to bring a civil
RICO claim. "A person whose property is diminished
Finally, section 23004.1 only addresses by a payment of money wrongfully induced is injured
claims sounding in tort, for it applies only "under in his property." Reiter v. Sonotone, 442 U.S. 330,
circumstances creating a tort liability upon some third 339, 99 S. Ct. 2326, 60 L. Ed. 2d 931 (1979). This is
person . . . ." The statute therefore has no applicability precisely the RICO injury the Counties allege.
to the Counties' equitable claims.
In Sedima, S.P.R.L. v. Imrex Co., Inc., 473
IV. U.S. 479, 105 S. Ct. 3275, 87 L. Ed. 2d 346 (1985),
the United States Supreme Court rejected the notion of
THE COUNTIES STATE RICO CLAIMS an "additional, amorphous racketeering injury
requirement." "If the defendant engages in a pattern of
Defendants do not challenge the adequacy of racketeering activity in a manner forbidden by [section
the Counties' detailed RICO allegations under 18 1962(a), (b) or (c)], and the racketeering activities
U.S.C. § 1962(a), (c) or (d). 16 Instead, Defendants injure the plaintiff in his business or property, the
argue that the Counties have failed to properly plead, plaintiff has a claim under section 1964(c)." Id. at 495.
as 18 U.S.C. § 1964 requires, that they have been The Counties satisfy this actual causation requirement,
"injured in [their] business or property by reason of a since the detailed allegations of their Complaint
violation of section 1962." First, defendants contend establish an unbroken claim of causation running from
that the Counties' damages are too remote to be defendants' conduct to plaintiffs' damages.
proximately caused by the alleged RICO violations.
Second, defendants contend that the Counties' damages Defendants rely heavily on Holmes v.
are not recoverable under RICO because they are Securities Investor Protection Corporation, 503 U.S.
personal injury damages. 258, 112 S. Ct. 1311, 117 L. Ed. 2d 532 (1992). Their
treatment of the case, however, is superficial.
Neither argument has merit. The Counties Accordingly, we address the facts and principles of
have suffered and are seeking to recover for their own Holmes in detail, to demonstrate that, upon fair reading
economic losses. The Supreme Court has held that real and considered application, Holmes and the cases that
or threatened personal harm can give rise to RICO follow it support plaintiffs' RICO claims.
losses. The Counties' RICO losses, unlike those in the
cases relied upon by defendants, are neither shared by In Holmes, the Supreme Court held that
or asserted on behalf of third parties. Moreover, the section 1964(c) also incorporates a proximate cause
Counties' losses are not caused by the intervening requirement. The Holmes decision confirms civil
wrongdoing of third parties: the losses are fairly RICO's status as a statutory tort with a distinct
jurisprudence of causation. The Holmes Court adopted
Government Code § 23004.3 provides that it "shall become
the traditional common law concept of proximate cause
operative in a county if the board of supervisors of the county, by to reflect the policy considerations arising specifically
resolution, elects to be governed" thereby. Most of the plaintiff from the RICO statute. Id. at 269-270.17 Given that
Counties have adopted resolutions making that election. Of
course, defendants' argument that section 23004.1 is exclusive has civil RICO is not an exclusive remedy, and (unlike
no application to counties such as San Francisco which have not other remedies) imposes treble damages for violations,
chosen to adopt it.
Defendants suggest in a footnote that the Counties have not
Holmes required "some direct relation between the
properly alleged that they were injured by defendants' use or injury asserted and the injurious conduct alleged." Id.
investment of racketeering income. Plaintiffs meet the pleading at 268.
standard set out by the Ninth Circuit in Nugget Hydroelectric v.
Pacific Gas and Electric, 981 F.2d 429, 437 (9th Cir. 1992). The
defendants used and invested their racketeering proceeds in the
enterprises in order to control, suppress and conceal information "Other courts have recognized that civil RICO is 'a statutory tort
regarding the adverse health effects of smoking, to devise means remedy — simply one with particularly drastic remedies.'" Bieter
for manipulating nicotine, and to entice individuals to smoke. Co. v. Blomquist, 987 F.2d 1319, 1329 (8th Cir. 1993) (reversing
These activities injured the Counties because they were required to summary judgment for defendants based on "excessively narrow
incur significant health-care costs attributable to tobacco-related views of causation and injury," id. at 1326, and reinstating RICO
diseases. See Complaint, ¶¶209 - 211. claims).
responsible causation." Valleyside Dairy Farms, Inc.
Significantly, however, Holmes declined to v. Smith, 1996 U.S. Dist. LEXIS 10982 at *5 (W.D.
take the step that defendants ask this Court to take. Mich. 1996).18
Instead, the Court cautioned that "the infinite variety of
claims that may arise make it virtually impossible to Under Holmes, directness is a relative term:
announce a black-letter rule that will dictate the result there may be links or steps in the chain of causation
in every case." Id. at 272 n.20. As the Court stated: between the RICO violation and the RICO injury. The
determining factor in establishing proximate cause is
Here we use 'proximate cause' to label not whether the conduct and injury are immediately
generically the judicial tools used to adjacent, but whether they are sufficiently related.
limit a person's responsibility for the Holmes articulates three RICO-specific factors to be
consequences of that person's own acts. applied in assessing the sufficiency of the violation-
At bottom, the notion of proximate injury relationship:
cause reflects 'ideas of what justice
demands, or of what is administratively First, the less direct an injury is, the
possible and convenient." more difficult it becomes to ascertain the
amount of a plaintiff's damages
Id. at 268. attributable to the violation, as distinct
from other, independent factors.
Here, ideas of what justice demands are
consonant with the tobacco companies' liability for the ***
known, foreseen, and intended economic consequences
of their own conduct. The calculation and award of Second, . . . recognizing claims of the
compensatory damages for the Counties' smoking- indirectly injured would force courts to
related health care expenditures is readily adopt complicated rules apportioning
ascertainable. Contrary to defendants' contentions, the damages among plaintiffs removed at
harm to the Counties does not "flow merely from the different levels of injury from the
misfortunes visited" upon smokers by the defendants' violative acts, to obviate the risk of
acts: these acts included representations made to, multiple recoveries
information concealed from, and affirmative duties
undertaken toward the plaintiffs themselves. ***
Notably, Holmes itself held that one need not Finally, the need to grapple with these
be the purchaser or seller of a security in order to problems is simply unjustified by the
assert a civil RICO claim arising from securities fraud. general interest in deterring injurious
Id. at 276. Thus, there is no principle, in Holmes or conduct, since directly injured victims
elsewhere, that would require plaintiffs to purchase or can generally be counted on to vindicate
smoke defendants' products themselves, or to incur the law as private attorneys general,
personal injury, in order to meet RICO's standards for without any of the problems attendant
standing or causation. As to any "direct-injury upon suits by plaintiffs injured more
limitation" under § 1964(c), Holmes warned: remotely.
[O]ur use of the term 'direct' should Holmes, supra, 503 U.S. at 269-70.
merely be understood as a reference to
the proximate-cause enquiry informed Neither the proximate cause analysis nor the
by the [RICO-specific] concerns in facts of Holmes support dismissal of the Counties'
[three factors articulated in] the text. RICO claims. The Holmes defendants' stock
We do not necessarily use it in the same manipulation scheme (indirectly) caused broker-
sense as courts before us have and
intimate no opinion on results they In Holmes, the plaintiff's claims failed not because the plaintiff did
not purchase or sell defendant's securities, id. at 275-76, but
reached. because its claim, unlike the Counties' claim here, was based solely
on an alleged but undefined subrogation claim, and the losses for
Id. at 272 n.20. The Holmes articulation of RICO which recovery was sought were losses the defaulting broker-
dealers and their customers had themselves incurred and could
proximate cause "is not . . . the same thing as a sole have pursued directly. Id. at 270-271. Moreover, these customers
cause," and a RICO violation is actionable if the had not purchased the manipulated stock involved in the RICO
violations; trustees for those who did buy the manipulated stock
alleged harm "appears to logically proceed" from the "bought their own suit against the [RICO] conspirators." Id. at 272
alleged fraud as a "substantial factor in the sequence of n.18.
dealers to default on obligations to customers who had RICO violations.20 Defendants foresaw that
not purchased the manipulated stock; these customers concealment and suppression of information relating to
lost money as an even more indirect result of the the health consequences of smoking, their
broker-dealers' investments; the SIPC covered those manipulation of the levels of nicotine in cigarettes, and
losses, and then asserted RICO claims to recover what their efforts to avoid responsibility for smoking-related
it described as "its money paid to customers for health care costs would increase the costs of public
customer claims against third parties." Id. at 270. As health care. Moreover, as the Complaint alleges, the
Holmes concluded, "in sum, subrogation to the rights defendants' fraud on the public regarding the
of the manipulation conspiracy's secondary victims suppression, concealment and misrepresentations of
does, and should, run afoul of proximate-causation the dangers of smoking have had, as an intended
standards, and SIPC must wait on the outcome of the objective, the avoidance of responsibility for health
[manipulated stock customers'] trustees' suit." Id. at care costs, an injury aimed directly at providers of free
274. medical care. There were no intervening causes to
break the causal connection for the Counties have a
The Counties' situation is completely statutory obligation to pay health care costs, and those
different. As the Counties allege, and defendants' own costs measurably increased due to the defendants'
public statements demonstrate, defendants' conduct conduct in violation of RICO.
violating RICO was directed simultaneously toward
individual smokers and those, like the Counties, The Ninth Circuit has applied Holmes'
responsible for the public health. There is no proximate cause analysis to other RICO claims. See,
"intervening" transaction that would break the chain of e.g., Pillsbury, Madison & Sutro v. Lerner, 31 F.3d
causation: the Counties' losses result from the same 924 (9th Cir. 1994); Imagineering, Inc. v. Kiewit
smoking addiction that was the purpose of defendants' Pacific, 976 F.2d 1303, 1312 (9th Cir. 1992).
conduct.19 Defendants rely on the inapposite facts of Holmes, and
the Ninth Circuit's application of Holmes in equally
All three Holmes factors support plaintiffs' distinguishable cases, and argue that a bright-line rule
RICO claim. As to the first factor there is a direct, exists to preclude claims for "indirect, derivative
proportional, and calculable relationship between the damages." Holmes says the opposite. 503 U.S. at 272.
Counties' expenditures and defendants' conduct: there
are no "other, independent factors" that affect the Moreover, the issue in the cases cited by
Counties' smoking-related costs. Holmes, supra, 503 defendants is really one of intervening causes21 and
U.S. at 269. The second Holmes factor is satisfied
because this case does not involve "different levels of See, e.g., Valleyside, supra, a post-Holmes decision that denied
defendants' summary judgment motion on RICO claims arising
injury" or the "risks of multiple recoveries." Id. from defects in the silos sold by defendant. Fraud was alleged in
Plaintiffs are not in competition with any other connection with the representations employed to sell the silos.
Valleyside held that, while plaintiff's damages arose immediately
claimants for the recovery of the Counties' health care from the product defect, this defect was not an intervening cause
costs. The Counties incurred these costs at the "first that broke the chain of RICO causation. As Valleyside noted,
level" of RICO injury and possess the resulting legal "Based on the present record, the alleged defective product does
not properly characterize as an intervening cause. Rather, its
claims. The third factor also supports the Counties' performance is the very object of the alleged misrepresentation. . . .
RICO claim, since the indigent smokers are not out of " Id. at *8. Similarly, the performance of defendants' cigarettes is
at once the very object of their alleged misrepresentations,
pocket and have no incentive to assert such a claim. omissions, nicotine manipulation, and other fraudulent conduct, as
Without the Counties' assertion, defendants' injurious well as the cause of plaintiffs' health care expenditures. Hence, the
conduct remains undeterred and the purpose of RICO chain of causation is both logical and continuous, unbroken by
intervening causes. See, e.g., Valleyside, supra, a post-Holmes
is thwarted. Id. at 269-70. decision that denied defendants' summary judgment motion on
RICO claims arising from defects in the silos sold by defendant.
Fraud was alleged in connection with the representations employed
Under the Holmes analysis, the Counties' to sell the silos. Valleyside held that, while plaintiff's damages
claims were proximately caused by the defendants' arose immediately from the product defect, this defect was not an
intervening cause that broke the chain of RICO causation. As
Valleyside noted, "Based on the present record, the alleged
If this case involved plaintiffs' reimbursement of the health care defective product does not properly characterize as an intervening
costs of "secondary victims," e.g. non-smokers who became cause. Rather, its performance is the very object of the alleged
indigent because their costs had allegedly increased as a result of misrepresentation. . . . " Id. at *8. Similarly, the performance of
the impact of smoking on the health care system, there might be an defendants' cigarettes is at once the very object of their alleged
arguable analogy to Holmes. Here, certainly, there is no allegation misrepresentations, omissions, nicotine manipulation, and other
that smoking causes insolvency to smokers or others; the extra fraudulent conduct, as well as the cause of plaintiffs' health care
steps in the causation sequence that attenuated the SIPC "claims" expenditures. Hence, the chain of causation is both logical and
in Holmes are absent. Both solvent and indigent persons smoke. continuous, unbroken by intervening causes.
The former pay their own health care costs; the Counties pay the The so-called "intervening event" invoked by defendants does not
latter. The losses of both are equally direct. The Counties are so qualify. See, e.g., Matthews, Weissman & Sturo, 2 Civil RICO
analogous to the purchasers of the manipulated stock, and Holmes Litigation § 8.04[C], 8-103-105 (2d ed. 1992) ("In order for later
acknowledged the actionability of such claims. events to supersede earlier predicate acts as the proximate cause
whether they break the causal link between a plaintiff's
injuries and a defendant's RICO acts. In each of the In both Imagineering and Pillsbury, there
cases on which the defendants rely, there were such were multiple layers of potential plaintiffs who had,
intervening causes. Here, there are none. arguably, suffered the very same type of RICO injury.
Like the Court in Holmes, the Ninth Circuit declined to
In Imagineering, minority and women-owned go beyond the "first step" to reach the underlying
subcontractors ("MWBEs") alleged that a contractor levels of claims, reasoning that the most direct victim
had engaged in a scheme to evade regulations requiring could best assert the RICO claim. In each of these
prime contractors to employ MWBEs on public works cases, a series of business decisions and commercial
projects. The Ninth Circuit found that there was no transactions, involving rational decisions, informed
direct relationship between the defendant's scheme and choices, and objective risk assessment, intervened to
the MWBEs' inability to earn profits on the complicate proof, threaten multiple recoveries, and
subcontracts. "It was the intervening inability of the create problems of apportionment.
prime contractors to secure the contracts that was the
direct cause of plaintiffs' injuries." Id. at 1312. The Here, by contrast, there is no volitional,
MWBEs could allege "only a speculative injury" -- rational or informed decision intervening between the
potential future loss contingent on many factors. Id. at tobacco defendants' conduct and the Counties'
1311. "Because the MWBEs could not set forth a payment. The insolvency of smokers, the condition
reasonable business expectancy in particular that triggered the Counties' payment, is not an
subcontracts, they could not establish that they were intervening cause, but simply a pre-existing and
injured by reason of [defendant's] purported RICO independent variable that is known and foreseen by the
violation." Id. at 1306. defendants. Plaintiffs allege that there can be no act of
informed decision making or true volition on the part
Here, by contrast, the Counties have lost of smokers to insulate the tobacco companies' RICO-
substantial sums of money treating the diseases that violative conduct from the Counties' costs. The
defendants' conduct has caused. As a result, the conduct of manipulating nicotine to create and sustain
Counties satisfy the Imagineering requirement of addiction is purely coercive. The Counties' payment of
"concrete financial loss" and "money . . . paid out as a the resulting health care costs is involuntary. There is
result of racketeering activity." Id. at 1310. no issue of multiple recoveries. Whether smokers
themselves can recover their own health care costs
In Pillsbury, Madison & Sutro v. Lerner, 31 under RICO is not before this Court, and affects
F.3d 924 (9th Cir. 1994), sub-tenant Pillsbury claimed neither the actionability nor the quantum of the
that its rent increases were due to defendants' RICO Counties' RICO injuries.
violations. The Ninth Circuit found that these losses
resulted instead from two intervening causes: (1) Similarly, there is no apportionment problem.
Pillsbury's sublease, pursuant to which the master No one but the tobacco companies is liable for the
tenant chose to pass along, rather than absorb, the hefty Counties' smoking-related health care costs under civil
rent increase; and (2) the arbitration proceeding which RICO, since theirs is the only intentional, fraudulent,
purportedly determined the fair annual rental value of and coercive conduct at issue. As to the RICO injury
the building. Unlike the automatic obligation of the itself, the Counties are truly direct victims: their costs
Counties to pay smoking related health care costs in are the first layer of financial loss, and this Court need
this case, the Pillsbury court found "nothing 'automatic' not "go beyond the first step," Holmes, 503 U.S. at
about the sublease rent increase. …[P]ermitting 271, to uphold their RICO claims.
Pillsbury to sue needlessly exposes the defendants to a
risk of multiple recoveries by [the master tenant], In Imagineering and Pillsbury, the plaintiffs
Pillsbury, and [the master tenant's] other subtenants…. (in the views of those courts) could and should have
This potential for multiple recoveries highlights the depended upon the pursuit of RICO claims by those
indirect nature of Pillsbury's injury." Id. at 930. more directly situated. In Pillsbury, for example, the
Ninth Circuit held that the master tenant could (and
arguably should) have pursued the RICO claim and
of injury, however, they normally must (i) in fact intervene between
the original acts and the injury so as to render the cause and effect
thereby reduced the rents. That result would have
relationship between those acts and the injury more tenuous; (ii) not eliminated damages that presaged plaintiff's attempted
have been known or foreseeable at the time the original acts RICO claim.
occurred; and (iii) not be the 'normal incidents of the risks the
defendant has created.'"). "It is important not to neglect the
requirement that the intervening forces be casually independent of Here, by contrast, due to the Counties'
the forces set in motion by the defendant's conduct." Id. at 8-105
(emphasis in original). Here, by contrast, smoking and the resulting
obligation to fund the health care programs and to pay
diseases are entirely dependent on such forces. certain medical treatment costs of the public, the
money paid out by the Counties is not money which the more direct, and more directly traceable, economic
individuals with smoking-related illnesses were ever impact on the plaintiffs than could be claimed in
out of pocket. Instead, that money has been paid Miller. In Miller, prospective reduction of a potential
straight out of county coffers. Thus, the Counties' (but uncertain) personal injury award created a RICO
economic losses are primary, and not secondary to injury, RICO standing, and RICO proximate cause:
these individuals. The fact that the alleged RICO "The complaint properly alleges compensable injury
scheme also affected and injured other individuals and flowing from the commission of the predicate acts." Id.
entities does not make the Counties' RICO claims any at 499. Here, actual and substantial economic damage
less direct or traceable. has already occurred, in the payment by plaintiffs for
treatment of injuries that are themselves a parallel
B. The Counties' Injuries Are for Economic direct result (rather than a non-causative antecedent) of
Losses defendants' RICO violations.
The Counties' injury satisfies the "business or In Prudential Ins. Co. of America v. United
property" element of 18 U.S.C. § 1964(c). The States Gypsum Co., 828 F. Supp. 287 (D.N.J. 1993),
Counties allege that the defendants' RICO violations the court refused to dismiss a RICO claim against
have caused them millions of dollars of harm each year asbestos manufacturers. Prudential alleged that the
in health care expenditures: the "concrete financial health hazards of the asbestos in the buildings
loss" § 1964(c) requires. Pillsbury, 31 F.3d at 929. Prudential purchased caused it RICO injury: the cost
The defendants argue that, because the Counties' of asbestos removal. The court did not question that
financial loss involves the health effects of tobacco, the Prudential had suffered RICO injury. Id. at 296-97.
loss somehow falls outside the scope of RICO. Just as the financial loss caused by the need to abate
Defendants rely solely on a series of inapposite cases asbestos hazards constituted RICO injury, so does the
involving RICO suits by personal injury victims Counties' financial loss caused by the need to abate the
seeking redress for their own physical and mental health effects of tobacco.
suffering and related pecuniary harm, such as lost
wages. The RICO statute specifically recognizes that
personal injuries may be an intervening step in the
In fact, numerous courts, including the Ninth infliction of economic harm. See, e.g., 18 U.S.C.
Circuit, have recognized that financial loss derived §1961(1)(A) ("racketeering activity" includes "any act
from personal injury may qualify as a RICO injury. or threat involving murder, kidnaping, . . . arson,
See Miller v. Glen & Helen Aircraft, Inc., 777 F.2d robbery, bribery, extortion"). The Supreme Court
496, 498 (9th Cir. 1985). In Miller, a personal injury confirmed this distinction in National Organization for
victim brought RICO claims against the defendant's Women, Inc. v. Scheidler, 510 U.S. 249, 114 S. Ct.
private investigator. He was alleged to have illegally 798, 127 L. Ed. 2d 99 (1994) ("NOW"). There, the
conspired to intimidate witnesses during the trial of Court upheld an abortion/medical clinic's standing to
Miller's personal injury claims. The Ninth Circuit sue anti-abortion protestors under RICO. The NOW
specifically found that the alleged RICO injury -- the defendants argued their activities were not conduct that
claim that payments made to the racketeering violated RICO, or even conduct at all, but
investigator had depleted insurance proceeds available constitutionally protected speech. The defendants also
to pay plaintiff's personal injury claim -- was asserted that their activities could not violate RICO
sufficiently "direct" to state a RICO claim. Id. at 498- because they were not economically motivated.
499.22 In Miller the accident caused personal injury to
plaintiff, but the RICO predicate act, directed toward The Supreme Court rejected both contentions.
others, started a chain reaction that culminated in 510 U.S. at 256-62. The complaint "alleged that
plaintiff's economic loss. Id. respondents conspired to use threatened or actual
force, violence or fear to induce clinic employees,
Here, defendants' subversion of research, doctors, and patients to give up their jobs, give up their
misrepresentations to the public, and manipulation of economic right to practice medicine, and give up their
nicotine to create and sustain addiction for profit are right to obtain medical services at the clinics…
similarly coercive. Indeed, defendants' acts have a far [P]etitioners claim that this conspiracy 'has injured the
business and/or property interests of the [petitioners].'"
Accord, Malley-Duff & Assoc. v. Crown Life Ins. Co., 792 F.2d 510 U.S. at 253-54. The fact that personal intimidation
341, 355 (3d Cir.), aff'd sub nom Agency Holding Corp. v. Malley-
Duff & Assoc., 483 U.S. 143, 107 S. Ct. 2759, 97 L. Ed. 2d 121 was the immediate intention of the RICO defendants,
(1987). Both cases held expenses of prior litigation were available and the predicate of plaintiffs' resulting economic
as RICO damages where caused by defendants' violative
intimidation or coercion of third parties. Miller, 777 F.2d at 498;
harm, did not prevent the Court from finding the
Malley-Duff, 792 F.2d at 344. requirements of RICO were satisfied. The Court ruled
that the respondents were "wrong" "in asserting that addiction to nicotine." Id.25
the complaint alleges no 'injury' to [petitioners] fairly
traceable to the defendant's allegedly unlawful Neither NOW nor Oscar recognized the
conduct." 510 U.S. at 255. The Court found plaintiffs' impediment Allman placed before the RICO claim
allegations sufficient: "At the pleading stage, general there -- that persons who suffer non-compensable
factual allegations of injury resulting from the smoking-related personal injuries could not claim their
defendant's conduct may suffice, for on a motion to smoking-related economic losses. Plaintiffs here do
dismiss we presume that general allegations embrace not confront that obstacle. The Counties have not
those specific facts that are necessary to support the suffered personal injuries. Their losses are purely
claim." Id.23 economic. The financial injury of the Counties would
be exactly the same if it were a fraudulent billing
Contrary to defendants' assertion, RICO scheme by health care providers that caused the health
claims may accompany or arise from "personal care expenditures at issue. There could be no
injuries" and other coercive conduct, whether directed contention that the Counties could not sue those health
toward third parties or the plaintiffs themselves.24 The care providers under RICO because the causal chain
cases on which the Defendants rely are readily that brought about the financial loss necessarily
distinguishable. First and foremost, those cases included personal injury.
demonstrate only that personal injury victims cannot
use RICO to recover personal injury damages. But as V.
Miller demonstrates, the Ninth Circuit has not
foreclosed damages under RICO when personal THE COUNTIES STATE CLAIMS FOR
injuries initiate a chain of causation that culminates in RESTITUTION AND UNJUST ENRICHMENT
financial loss. Similarly, the Supreme Court itself, in
NOW, recognizes that personal threats directed toward Underlying defendants' three paragraph attack
one victim may cause RICO injury to another. on the Counties' equitable claims, see Deft. Mem. at
22-23, is the premise that those claims rise and fall
The centerpiece of defendants' argument, with the Counties' legal claims. This premise is wrong
Allman v. Philip Morris, Inc., 865 F. Supp. 665 (S.D. for several reasons. First, it presupposes that
Cal. 1994) is inapposite. Allman concerned a claim by defendants have established that each of the Counties'
individual smokers seeking "damages for the out-of- legal claims is deficient as a matter of law. As
pocket expenses they incurred in treating their demonstrated above, however, the Counties have
addictions, specifically the cost of the Nicotine Patch adequately pleaded their legal claims.
and the related medical expenses." Id. at 668. The
Allman court explained that, "although plaintiffs Second, even in the unlikely event this Court
characterize their injury as pecuniary and thus an were to dismiss every legal claim alleged by the
injury to their property, the Court is unable to ignore Counties, the equitable claims would survive. Courts
that the core injury alleged in the complaint is have expressly rejected defendants' argument that to
prevail on a theory of unjust enrichment, "there must
be some [legal] wrongdoing or actual fraud." See
See also Libertad v. Welch, 53 F.3d 428, 437 n.4 (1st Cir. 1995), Frank v. Tavares, 142 Cal. App. 2d 683, 688-89, 298
a post-NOW decision. There, the defendants allegedly threatened P. 2d 887 (1956) (also noting that there is "no
and intimidated women seeking abortions. The First Circuit held
that evidence of resulting injury to the plaintiffs' business or particular form of pleading necessary to invoke the
property "such as lost wages or travel expenses, actual physical doctrine"). Indeed, as previously noted, in the State of
harm, or specific property damages" could suffice to establish
plaintiffs' RICO injury; Hunt v. Weatherbee, 626 F. Supp. 1097,
Mississippi's suit against the tobacco companies, which
1100 (D. Mass. 1986) (loss of opportunity to work due to is based only on equitable claims, the trial court denied
intimidating threats of physical harm constituted RICO injury). defendants' motion for judgment on the pleadings. See
See fn. 23, supra. As the Ninth Circuit observed in Oscar v.
University Students Co-Op Ass'n, 965 F.2d 783, 786 (9th Cir.), cert. Nelson Decl., Exh. C. There, as here, defendants
denied, 506 U.S. 1020, 113 S. Ct. 655, 121 L. Ed. 2d 581 (1992),
citing Genty v. Resolution Trust Corp., 937 F.2d 899, 918 (3d Cir.
1991), "the unavailability of the civil RICO treble damages action for The Allman decision ignored Oscar's observation that RICO
personal injuries in no way restricts the plaintiff's right to bring a "injuries to business or property" could indeed accompany or derive
pendent state wrongful death or personal injury action along with a from those sounding in personal injury. This principle is fully
RICO action for damages to business and property." In Oscar, consistent with the Ninth Circuit's earlier Miller decision and the
plaintiff's RICO injuries were found deficient because they sounded Supreme Court's most recent decision in NOW. It appears that the
solely "personal discomfort and annoyance." However, the court Allman decision, which cited neither Miller nor NOW, fundamentally
noted that the plaintiff could perhaps have suffered, and alleged, misapprehended the nature of the claims before it: the Allman
financial loss that would have been cognizable under RICO. The plaintiffs were not seeking personal injury damages under RICO;
dismissal of her claim was affirmed, not because she alleged rather, they argued that addiction (a coercive act by defendants
personal injury, but because, despite repeated opportunities, she reasonably analogous to the RICO-violative threats and coercion
had not alleged accompanying concrete financial loss. 965 F.2d at alleged in NOW) required their expenditures on "stop smoking"
787. devices and treatments. 865 F. Supp. at 667.
sought to characterize the case as a products liability Counties allege that since at least 1953, defendants
action and argued that the State was relegated to have engaged in a conspiracy to mislead, deceive and
bringing individual suits in subrogation. See id., Exh. confuse the Counties and the public regarding the
B. The Mississippi court disagreed, allowing the severe and often deadly health consequences of
State's claim for restitution, unjust enrichment and smoking, as well as regarding the addictive nature of
indemnity to proceed to trial. Id., Exh. C. nicotine. Com., ¶¶ 64-167. Defendants falsely
promised to conduct and report the results of
The Mississippi court's ruling is in accord "disinterested" research by credentialed scientists;
with fundamental principles of equity. Foremost failed to admit their knowledge that smoking causes
among these principles is that "[a] person who has cancer; denied that nicotine is addictive; continued to
been unjustly enriched at the expense of another is sell products they knew to cause illness and death; and
required to make restitution to the other." Restatement suppressed material information, among other deceitful
of Restitution (1937), § 1 (Unjust Enrichment). A actions. By engaging in such wrongful conduct,
person is enriched if he has "received a benefit." Id., defendants intended to -- and did -- receive significant
com. a; Earhart v. William Low Co., 25 Cal. 3d 503, benefits. These benefits include being spared the
510, 158 Cal. Rptr. 887 (1979) (citing Restatement). enormous costs borne by the Counties for medical care
What constitutes a benefit is liberally construed: "[A for indigents who suffer the ravages of smoking-related
person] confers a benefit not only where he adds to the illness. Id., at ¶¶ 4, 6-16, 203, 211.
property of another, but also where he saves the other
from expense or loss. The word ‘benefit,' therefore, Defendants' reliance on the "holding of
denotes any form of advantage." Restatement of Weinrot" is unavailing. Deft. Mem. at 23 (emphasis in
Restitution at § 1, com. b (emphasis added). original). Weinrot involved no equitable claims. See I.
J. Weinrot and Son, Inc., 40 Cal.3d at 329 (deciding
Also fundamental is the principle that "whether Civil Code section 49, subdivision (c), gives
equitable powers are broad and flexible. As the a corporate employer a cause of action for damages
California Supreme Court stated long ago: resulting from injuries to a key employee caused by a
third party's negligence"). Similarly, Herrick v.
The powers of a court of equity, dealing Superior Court, 188 Cal. App. 3d 787, 789 (1987) and
with the subject-matters within its Fischl v. Paller & Goldstein, 231 Cal. App. 3d 1299
jurisdiction, are not cribbed or confined (1991), also cited by defendants, involve no equitable
by the rigid rules of law. From the very claims.
nature of equity, a wide play is left to the
conscience of the chancellor in Equally misplaced is defendants' reliance on
formulating his decrees, that justice may Marina Tenants Ass'n v. Deauville Marina Dev. Co,
be effectually carried out. It is of the Ltd., 181 Cal. App. 3d 122, 226 Cal. Rptr. 321 (1986).
very essence of equity that its powers In Marina, the court recognized the unremarkable
should be so broad as to be capable of proposition that the rights of third-party beneficiaries
dealing with novel conditions. to a lease are no greater than those of the contracting
parties. Id. at 132, 134. The court held that the third
Bechtel v. Wier, 152 Cal. 443, 446, 93 P. 75 (1907); party beneficiaries had no unjust enrichment claim
see also DeGarmo v. Goldman, 19 Cal. 2d 755, 759, based on the lease, given that the contracting parties
123 P. 2d 1 (1942) ("courts of chancery have always themselves had no such claim. In this case, by
claimed and exercised the right to provide a remedy for contrast, the Counties' rights are not delineated by
every wrong not cognizable by courts of law"); contract and, more importantly, the wrongful conduct
MacFarlane v. Peters, 103 Cal. App. 3d 627, 631-32, of the companies has enriched them unjustly. Because
163 Cal. Rptr. 655 (1980) (although a party's acts "may courts have "broad equitable powers to fashion
be legal, in and of themselves, where they are done whatever remedies are needed to redress obvious
with a fraudulent or oppressive intent, equity will wrongs," Crain v. Electronic Memories and Magnetics
intervene").26 Corp., 50 Cal. App. 3d 509, 524, 123 Cal. Rptr. 419
(1975), the Counties are entitled to have their equitable
The Counties' claims for restitution and unjust claims heard.
enrichment fall squarely within these principles. The
Of course, equity cannot "intrude in matters that are plain and
fully covered by positive statute" or require that which the law For the reasons stated, plaintiff Counties
specifically forbids. See Marsh v. Edelstein, 9 Cal. App. 3d 132, respectfully request that the Court deny defendants'
140-41, 88 Cal. Rptr. 26 (1970). But that clearly is not the situation
here. motion to dismiss.
COUNTY OF SANTA BARBARA
Respectfully submitted Stephen Shane Stark (SB# 063779)
Santa Barbara County Counsel
CITY AND COUNTY OF SAN FRANCISCO Jerry F. Czuleger (SB# 110397)
Louise H. Renne, State Bar #36508 Senior Deputy County Counsel
City Attorney 105 East Anapamu, Suite 201
Dennis Aftergut, State Bar #75656 Santa Barbara, CA 93101
Chief Assistant City Attorney Telephone: (805) 568-2950
Elizabeth D. LaPorte, State Bar #106670
Chief of Special Litigation COUNTY OF CONTRA COSTA
Jennifer H. Small, State Bar #127851 Victor J. Westman (SB# 34044)
Special Assistant City Attorney Contra Costa County Counsel
Fox Plaza Vickie Dawes (SB# 81789)
1390 Market Street, 6th Floor Deputy County Counsel
San Francisco, California 94102-5408 651 Pine Street, 9th Floor
Telephone: (415) 554-3932 Martinez, CA 94553
Facsimile: (415) 554-3837 Telephone: (510) 335-1800
Richard M .Heimann, State Bar #063607 COUNTY OF SACRAMENTO
Elizabeth J. Cabraser, State Bar #083151 Robert A. Ryan, Jr. (SB#69355)
William B. Hirsch, State Bar #111609 County Counsel
Robert J. Nelson, State Bar # 132797 700 H Street, Suite 2650
Melanie M. Piech, State Bar #143472 Sacramento, CA 95814
LIEFF, CABRASER, HEIMANN & BERNSTEIN, Telephone: (916) 387-5455
Embarcadero Center West COUNTY OF SAN MATEO
275 Battery Street, 30th Floor Thomas F. Casey, III (SB# 47562)
San Francisco, California 94111-3999 San Mateo County Counsel
Telephone: (415) 956-1000 Brenda B. Carlson (SB# 121355)
Deputy County Counsel
COUNTY OF ALAMEDA San Mateo County Counsel
Kelvin H. Booty, Jr. (SB# 030013) 401 Marshall Street
Alameda County Counsel Redwood City, CA 94063
Lorenzo E. Chambliss (SB# 39013) Telephone: (415) 363-4756
Senior Deputy County Counsel
1221 Oak Street, Suite 463 COUNTY OF SANTA CLARA
Oakland, CA 94612 Steven M. Woodside (SB# 58684)
Telephone: (510) 272-6700 Santa Clara County Counsel
Ann M. Ravel (SB# 62139)
COUNTY OF MARIN Chief Assistant County Counsel
Thomas G. Hendricks (SB# 35025) Ann M. Ravel (SB # 62139)
Marin County Counsel Chief Assistant County Counsel
Mari-ann G. Rivers (SB# 117053) 70 W. Hedding Street, 9th Fl. East
Deputy County Counsel San Jose, CA 95110
Room 342, Civic Center Telephone: (408) 299-2111
San Rafael, CA 94930
Telephone: (415) 499-6117 Attorneys for plaintiffs
COUNTY OF SAN BERNARDINO
Alan K. Marks (SB# 045597)
San Bernardino County Counsel
Charles J. Larkin (SB# 074027)
Deputy County Counsel
385 No. Arrowhead Avenue, 4th Floor
San Bernardino, CA 92415
Telephone: (909) 387-5455