UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK __________________________________________ ) BARBARA SCHWAB et al., individually and ) No. 04-CV-1945 (JBW) on behalf of all others similarly situated, ) Plaintiffs, ) v. ) ) PHILIP MORRIS USA, INC., R.J. REYNOLDS ) TOBACCO CO., BROWN & WILLIAMSON ) MEMORANDUM & ORDER TOBACCO CORP., LORILLARD TOBACCO ) CO., LIGGET GROUP, INC., AMERICAN ) TOBACCO CO., ALTRIA GROUP, INC., ) BRITISH AMERICAN TOBACCO ) (INVESTMENTS) LTD., ) Defendants. ) __________________________________________) APPEARANCES: For Plaintiffs: Cohen, Milstein, Hausfeld & Toll Finkelstein, Thompson & Loughran Washington, D.C. Washington, D.C. By: Benjamin D. Brown By: William P. Butterfield Paul T. Gallagher Hilary K Ratway Michael D. Hausfeld Richard M. Volin Andrea L. Hertzfeld Brent W. Landau Smoger & Associates, P.C. Douglas J. McNamara Oakland, CA Linda P. Nussbaum By: Gerson H. Smoger James J. Pizzirusso Susan Rogers Schwaiger For Defendant Philip Morris USA, Inc.: Arnold & Porter Kirkland & Ellis Washington, D.C. Chicago, IL By: Judith Bernstein-Gaeta By: David M. Bernick Anthony D. Boccanfuso Renee D. Honigberg Susan B. Cassidy 1 Brian Thomas Edmunds Murray R. Garnick Edward Gehres Jennifer Ann Karmonick Courtney E. Smothers For Defendant R.J. Reynolds Tobacco Company: Jones Day Womble, Carlyle, Sandridge & Rice Cleveland, OH and New York, NY Winston-Salem, NC By: Mark A. Belasic By: Gusti W. Frankel Harold Keith Gordon Theodore M. Grossman Steven P. Harte For Defendant British American Tobacco Ltd.: Chadbourne & Parke New York, NY By: Joseph Gerard Falcone Philip A. Pfeffer For Defendant British American Tobacco, P.L.C.: Chadbourne & Parke New York, NY By: Thomas Edward Riley For Defendant Liggett Group, Inc.: Kasowitz, Benson, Torres & Friedman New York, NY By: Leonard A. Feiwus Julie R. Fischer Aaron H. Marks 2 For Defendant Brown & Williamson Tobacco Corp.: Kirkland & Ellis New York, NY By: Peter A. Bellacosa For Defendant Lorillard Tobacco Company: Greenberg Traurig, L.L.P. New York, NY By: Alan Mansfield Joanne M. McLaren Stephen L. Saxl JACK B. WEINSTEIN, Senior United States District Judge: TABLE OF CONTENTS I. Introduction . .16 II. Allegations . 29 A. Burden of Proof . .29 1. Class Certification . .29 2. Summary Judgment . .30 B. Sources of Proof . 32 C. Overview of the Conspiracy and Fraud . 35 D. Other “Light” Cigarette Fraud Actions . .37 III. Racketeer Influenced and Corrupt Organizations Act . 40 A. Violation of Criminal RICO . .43 3 1. Conduct of a Racketeering Enterprise (§ 1962(c)) . .43 a. Enterprise . 43 b. Conduct . 44 c. Racketeering activity. 45 d. Pattern . .47 2. Conspiracy (§1962(d)) . 48 a. Cofacredit . .48 b. Supreme Court precedent . 50 c. Subsequent decisions of the Second Circuit and district courts . .53 d. Other circuits . .54 e. Conclusion on conspiracy requirements . .56 B. Injury to Property . 56 1. Law . .56 2. Defendants’ Motion for Summary Judgment on Injury . 57 a. Proprietary injury . 57 b. Personal injury . 61 3. Conclusion on Injury . .63 C. Causation and Reliance . .63 1. Law . 63 a. Factual causation . .64 b. Proximate causation . 64 4 c. Reliance . .66 i. Reliance is required . .66 ii. Role of reliance . .67 (a) Direct reliance . .67 (b) Third-party reliance . .68 d. Transaction causation and loss causation . 69 2. Defendants’ Motion for Summary Judgment on Causation . 70 a. Reliance . 70 i. Plaintiffs’ claims of reliance . .71 ii. Reliance showing required in this case. 72 iii. Plaintiffs have demonstrated reliance . .73 b. Indirect purchaser rule . .78 i. Illinois Brick . 80 ii. Inapplicability of Illinois Brick rule . 83 3. Conclusion on Causation . 89 D. Computation of Total Damages . 89 1. Plaintiffs’ Models . 90 a. “Loss of market” model . 91 b. “Loss of value” model . .92 c. “Price impact” model . 92 2. Law . 93 a. Practice under common law . 93 5 b. Practice under securities law. 96 i. 1933 Act . 96 ii. 1934 Act . 97 (a) Explicit rights of action . .97 (b) Implied rights of action . .98 c. Practice under antitrust law . .99 3. Application of Law to Facts . 103 a. Appropriate measure . .103 b. Degree of precision required . .107 4. Equitable Relief . 110 5. Conclusion on Computation of Total Damages . 111 E. Statute of Limitations . 111 1. Law . 111 a. Accrual . 112 b. Equitable tolling . .113 2. Procedural History . 114 3. Application of Law to Facts . 116 a. Actual knowledge . .116 b. Imputed knowledge . .118 i. Class counsel’s knowledge . .118 ii. Class members’ knowledge . 121 c. Separate accrual . 125 6 d. Equitable tolling . 125 4. Conclusion on Statute of Limitations . .127 IV. Collateral Estoppel . 127 A. Law . 128 B. Preclusive Effect in Possible Future Bodily Injury Cases . .129 C. Claim Splitting . ..