Reset A A Font size: Print

Supreme Court, New York County, New York.

Phyllis SMALL et al., Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. LORILLARD TOBACCO COMPANY, INC., et al., Defendants.

Mary A. HOSKINS, as Executrix of Edwin P. Hoskins, Deceased, et al., Plaintiffs, v. R.J. REYNOLDS TOBACCO COMPANY et al., Defendants.

Sharlene HOBERMAN et al., Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. BROWN & WILLIAMSON TOBACCO CORPORATION et al., Defendants.

Rose FROSINA et al., Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. PHILIP MORRIS, INC., et al., Defendants.

Catherine ZITO, et al., Individually and on Behalf of All Others Similarly Situated, Plaintiffs, v. AMERICAN TOBACCO COMPANY, INC., et al., Defendants.

Decided: October 28, 1997

Greenberg, Traurig, Hoffman, Lipoff, Rosen & Quentel (Alan Mansfield, of counsel), and Shook, Hardy & Bacon, L.L.P. (Gary R. Long, of counsel), for Lorillard Tobacco Company, Inc., and another, defendants. Debefoise & Plimpton (Harry Zirin, of counsel), for Council for Tobacco Research-USA, Inc., defendant. Seward & Kissel (Anthony R. Mansfield, of counsel), for Tobacco Institute, Inc., defendant. Jones, Day, Reavis & Pogue (Mark Belasic and Harold K. Gordon, of counsel), for R.J. Reynolds Tobacco Company and another, defendants. King & Spalding (Stefan W. Engelhardt of counsel), and Chadbourne & Parke, L.L.P. (Daniel J. O'Neil and Gretchen N. Werwaiss, of counsel), for Brown & Williamson Tobacco Corporation and others, defendants. Simpson, Thacher & Bartlett (John J. Kenney, of counsel), for B.A.T. Industries P.L.C., defendant. Dechert, Price & Rhoads (Robert A. Cohen, of counsel), for Philip Morris, Inc., and another, defendants. Goodkind, Labaton, Rudoff & Sucharow (Martis Ann Brachtl, Louis Gottlieb and Brian Stuart Campf, of counsel), for plaintiffs.

The motions pending before this court are hereby consolidated for purposes of disposition 1 .

These are five purported class actions brought by plaintiffs whom the defendants allegedly induced by fraudulent means to become cigarette smokers.   They seek to recover monies spent to purchase cigarettes.   In each action, defendants move to dismiss the complaint on all or one of the following grounds:  lack of personal jurisdiction over certain parent and holding companies of the cigarette manufacturers;  lack of subject matter jurisdiction over claims preempted by the Federal Cigarette Labeling and Advertising Act, 15 U.S.C. § 1331 et seq.  (“Labeling Act”);  and failure to state a claim and to plead fraud and deception with particularity required under CPLR 3016(b).



Plaintiffs are residents of the State of New York who purchased cigarettes manufactured, promoted, and sold by the defendants.   They sue the five major American cigarette manufacturers (collectively the “manufacturing defendants”) which are Philip Morris, Inc. (“Philip Morris”), Brown & Williamson Tobacco Corp. (“Brown & Williamson”), The American Tobacco Co., Inc. (“American Tobacco”), R.J. Reynolds Tobacco Co. (“RJR”), and Lorillard Tobacco Co., Inc. (“Lorillard”);  the respective parent holding companies of the manufacturing defendants (the “parent company defendants”);  and two industry trade associations, the Council for Tobacco Research-USA, Inc. (“CTR”), which was formed by the manufacturing defendants to conduct research involving cigarettes, and the Tobacco Institute, Inc. (“TI”), to which the manufacturing defendants belong.

Essentially, the amended complaints are identical in that all five allege claims for fraud, fraudulent concealment, violation of General Business Law (“GBL”) §§ 349 and 350 (deceptive practices and advertisements), civil conspiracy, concerted action, and aiding and abetting.   Plaintiffs contend that for decades defendants manipulated the levels and boosted the effects of nicotine by adding ammonia and other additives to cigarettes.   With the intent of influencing consumer smoking patterns, defendants purportedly disseminated misleading information through CTR and TI, and created a false controversy to raise doubts about the cancer causing and the addictive effects of cigarettes.   A combination of deceptive practices was allegedly employed by defendants to intentionally addict consumers, particularly adolescents, to cigarettes.

With the exception of B.A.T. Industries, Batus, Inc., and Batus Holding, Inc., defendants argue that this Court lacks subject matter jurisdiction because the Labeling Act preempts all of plaintiffs' claims which they contend are predicated upon breach of a duty to warn.   Defendants also allege that missing from plaintiffs' fraud and GBL §§ 349 and 350 claims are facts demonstrating the element of reasonable reliance.   They assert that the hazards of smoking and nicotine's addictive nature are matters of public knowledge.   Thus, even if plaintiffs relied on the advertisements and other public statements, defendants contend that their reliance was unreasonable.

 In deciding a motion to dismiss, the court must consider whether there can be fairly gathered from all of the factual allegations a legally cognizable cause of action (Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275, 401 N.Y.S.2d 182, 372 N.E.2d 17;  Ackerman v. 305 East 40th Owners Corp., 189 A.D.2d 665, 666, 592 N.Y.S.2d 365).   All facts alleged in the pleading must be accepted as true, and the court must accord a plaintiff the benefit of every possible favorable inference.  (Ackerman, supra at 666, 592 N.Y.S.2d 365).  “The motion should be denied if ‘from [the pleading's] four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law.’ ”  (Id.).  The Court's role is neither to determine the merits of the case, nor to express an opinion as to plaintiffs' ultimate likelihood of success on the causes of action alleged.   (Khan v. Newsweek, Inc., 160 A.D.2d 425, 426, 554 N.Y.S.2d 119).   Several of the defendants challenge whether personal jurisdiction exists over them.   Therefore, before deciding the viability of plaintiffs' claims, this Court will first address the jurisdictional issues, then the remaining arguments in seriatim.


Lack of Personal Jurisdiction

B.A.T. Industries (“B.A.T.”) is a British holding company that owns Batus Holding, Inc. (“Batus Holding”), which in turn owns the shares of Brown & Williamson.   Batus Inc. is a sister holding company of Batus Holding which was incorporated in Wisconsin and purportedly holds no ownership interest in Brown & Williamson.   British-American Tobacco Company Limited (“BATCo”) is a nonparty subsidiary of B.A.T. and sister company of Brown & Williamson that B.A.T. admits engages in tobacco research and product development (collectively referred to as “B.A.T. defendants”, unless otherwise indicated).

The B.A.T. defendants assert that because their contacts with the state of New York are insufficient, and they do not manufacture, market, or sell cigarettes, and do not control the activities of Brown & Williamson, personal jurisdiction over them under the long-arm jurisdiction statute is lacking.   They further urge this Court to follow a number of courts in other jurisdictions which dismissed actions against the B.A.T. defendants based upon proof similar the proof offered in this case 2 .  While these cases are instructive, this court must assess the question of jurisdiction based upon the record before it.

 CPLR 302 provides that a court may exercise jurisdiction over a nondomiciliary who in person or through an agent commits a tortious act within or without the state.   Based upon the acts of a subsidiary within the state, jurisdiction over a parent company may exist under an alter-ego theory.   However, a parent-subsidiary relationship alone cannot form the predicate for jurisdiction over the parent (H. Heller & Co. v. Novacor Chems. Ltd., 726 F.Supp. 49, 54 (S.D.N.Y.1988), affd., 875 F.2d 856 [2nd Cir.1969];  Porter v. LSB Indus., Inc., 192 A.D.2d 205, 213, 600 N.Y.S.2d 867).   There must be some proof that the parent company dominates or controls the daily activities of the subsidiary.  (Delagi v. Volkswagenwerk, 29 N.Y.2d 426, 328 N.Y.S.2d 653, 278 N.E.2d 895;  Taca International Airlines, S.A. v. Rolls-Royce of England, Ltd., 15 N.Y.2d 97, 256 N.Y.S.2d 129, 204 N.E.2d 329;  Billy v. Consolidated Machine Tool Corporation, 51 N.Y.2d 152, 432 N.Y.S.2d 879, 412 N.E.2d 934).   Although here the record fails to demonstrate that Brown & Williamson's daily operations are controlled by the B.A.T. defendants, the facts do support allegations of a conspiracy connecting all of the defendants to the transactions occurring in New York.

 A conspiracy-based theory of acquiring personal jurisdiction has been recognized as a basis for asserting personal jurisdiction over a nonresident defendant.  (See, Travelers Indemnity Company v. Inoue, 111 A.D.2d 686, 490 N.Y.S.2d 506;  American Broadcasting v. Hernreich, 40 A.D.2d 800, 338 N.Y.S.2d 146;  Lamarr v. Klein, 35 A.D.2d 248, 315 N.Y.S.2d 695, affd. 30 N.Y.2d 757, 333 N.Y.S.2d 421, 284 N.E.2d 576;  Reeves v. Phillips, 54 A.D.2d 854, 388 N.Y.S.2d 294;  Parke-Bernet Galleries v. Franklyn, 26 N.Y.2d 13, 308 N.Y.S.2d 337, 256 N.E.2d 506;  De Nigris Assoc. v. Pacific Air Transport Intl., Inc., 38 A.D.2d 363, 329 N.Y.S.2d 939;  also, Prudential Lines v. Firemen's Ins. Co., 91 A.D.2d 1, 457 N.Y.S.2d 272;  Ghazoul v. International Mgt. Servs., 398 F.Supp. 307 [1975] [applying New York law] ).   Courts have held that the tortious acts of a coconspirator committed within the state may be attributed to a nondomiciliary defendant for purposes of obtaining personal jurisdiction.  (Reeves v. Phillips, supra, 54 A.D.2d at 855, 388 N.Y.S.2d 294, citing, American Broadcasting v. Hernreich, supra 40 A.D.2d 800, 338 N.Y.S.2d 146).   Where some evidentiary facts are produced to support a prima facie case of jurisdiction that is enough to defeat a dismissal motion.  (Lamarr v. Klein, 35 A.D.2d 248, 315 N.Y.S.2d 695, affd. 30 N.Y.2d 757, 333 N.Y.S.2d 421, 284 N.E.2d 576;  Benson v. Syntex Laboratories, Inc., 161 Misc.2d 822, 614 N.Y.S.2d 990).

More than 200 exhibits have been submitted by plaintiffs which demonstrate that the B.A.T. defendants played a significant role in the process that led to the sale of tens of millions of packs of cigarettes in the State of New York annually.   Through a coordinated policy on health and smoking, all of B.A.T.'s tobacco operating companies, including Brown & Williamson, purportedly contributed to a group-wide tobacco research and development program.   When damaging information on smoking was allegedly detected in the files of Brown & Williamson, these documents were purportedly shipped offshore to B.A.T. or one of its other subsidiaries in England.   This was allegedly done to avoid disclosure of damaging information during litigation in the United States.   Not only to conceal key information, the B.A.T. organization of subsidiaries was purportedly used to secretly develop a genetically engineered tobacco known as Y-1, which was blended into cigarettes sold in the United States.   These allegations are not conclusively refuted by the B.A.T. defendants.   Instead, their motion papers acknowledge that the B.A.T. board of directors and senior officers established coordinated policies and procedures on tobacco research, marketing and public relations that applied to all B.A.T. subsidiaries.

 Whether the exercise of jurisdiction under the conspiracy theory comports with due process requirements depends, as in any case, upon a finding that the defendants have purposefully “availed [themselves] of the privilege of conducting business [in the forum state].”   (Burger King Corp. v. Rudzewicz, 471 U.S. 462, 475-76, 105 S.Ct. 2174, 2184, 85 L.Ed.2d 528).   Although B.A.T. defendants assert in no more than a footnote that the conspiracy theory of jurisdiction offends the due process clause, there is authority which upholds the exercise of jurisdiction on this theory.   (See, Ruiz v. American Tobacco Co., 977 F.Supp. 545 (D. Puerto Rico 1997);   Vermont Castings, Inc. v. Evans Products Co., 510 F.Supp. 940 [D.Vt.1981];  See also, Peterson v. Spartan Ind., 33 N.Y.2d 463, 354 N.Y.S.2d 905, 310 N.E.2d 513 [where a showing that facts may exist to support jurisdiction was found sufficient to deny a motion to dismiss and to permit discovery] [Emphasis added];  American Broadcasting Co., Inc. v. Hernreich, supra 40 A.D.2d 800, 338 N.Y.S.2d 146 [the issue of jurisdiction could not be summarily disposed because the issue was intermingled with the merits of the case];  see also, Reeves v. Phillips, supra 54 A.D.2d 854, 388 N.Y.S.2d 294).

 Overall the record contains some facts which support the existence of a conspiracy to deceive the public about the addictive nature of nicotine.   The facts also demonstrate that B.A.T., its subsidiaries, including Batus Holding, were members of a conspiracy, and were aware of the activities in New York. Therefore, at this early stage of the proceeding, the motions to dismiss must be denied without prejudice to the B.A.T. defendants to assert the jurisdictional objections by affirmative defense in their respective answers.



Section 5(b) of the Labeling Act (15 USC § 1334[b] ) which is captioned “Preemption” as amended provides:

No requirement or prohibition based on smoking and health shall be imposed under State law with respect to the advertising or promotion of any cigarettes, the packages of which are labeled in conformity with [Section 4] of this Act.

The purpose of the Labeling Act was to establish a comprehensive federal program, and to adequately inform the public of the health hazards of cigarettes, through warning labels, as set forth in Section 4 of the Act (15 USC § 1333). The preemptive effect of Section 5(b) was interpreted by the United States Supreme Court in Cipollone v. Liggett Group, Inc., 505 U.S. 504, 112 S.Ct. 2608, 120 L.Ed.2d 407 [1992].   There, plaintiff sued three cigarette manufacturers for common-law damages resulting from the death of a long-time smoker who died of lung cancer.   Several theories of liability were alleged, including failure to warn of the health consequences of smoking, fraudulent misrepresentation, and conspiracy to commit fraud.   In deciding whether the plaintiff's particular claims were preempted, the Court asked “whether the legal duty that is the predicate of the common-law damages action constitutes a ‘requirement or prohibition based on smoking and health ․ imposed under State law with respect to ․ advertising or promotion’ ” [.] (Id. at 524, 112 S.Ct. at 2621).   Giving the clause “a fair but narrow reading”, the Court held that some of the plaintiff's claims were preempted, while other claims were not because the Labeling Act only preempts those claims that are based upon a duty to warn (Cipollone v. Liggett, supra, 505 U.S. at p. 524, 112 S.Ct. at p. 2621).

In the instant cases, defendants argue that plaintiffs' claims are simply all variations of a failure to warn claim.   However, defendants have misconstrued plaintiffs' claims, and the Court's holding in Cipollone (supra) .  According to Cipollone, each claim must be assessed separately to ascertain whether it asserts that cigarette manufacturers' “advertising or promotions should have included additional, or more clearly stated, warnings[.]”  (Id. at 524, 112 S.Ct. at 2621).   Claims of fraudulent misrepresentation and conspiracy were not found preempted by the Labeling Act because fraud is not “predicated on a duty ‘based on smoking and health’ but rather on a more general obligation-the duty not to deceive.”  (Id. at 528-529, 112 S.Ct. at 2624).   The Court added that “unlike state-law obligations concerning the warning necessary to render a product reasonably safe, state-law proscriptions on intentional fraud rely only on a single, uniform standard:  falsity.”  (Id. at 529).

 Here, plaintiffs' fraud claims are partially based upon allegedly false statements made by defendants, such as those made before Congress on April 14, 1994, when the chief executive officers of each of the manufacturing defendants testified that nicotine is not addictive 3 .  They are also based upon newspaper advertisements published by Philip Morris and RJR. The one advertisement that plaintiffs claim is false states in part:  “Philip Morris does not believe cigarette smoking is addictive” and “ None of the ingredients added in the manufacture of cigarettes is harmful as used.”  (Pl.Exh.70).   The RJR advertisement states in part:  “Instead of increasing the nicotine levels in our products, we have in fact worked hard to decrease ‘tar’ and nicotine.”  (Pl.Exh.71).   This aspect of plaintiffs' fraud claim which alleges affirmative misrepresentations is clearly based upon falsity and not upon a duty to warn.   Thus, in this regard, it is not preempted by the federal statute.

 Likewise, plaintiffs' claims based upon conspiracy are not preempted.   The Cipollone Court found that “the predicate duty underlying [a conspiracy] claim is a duty not to conspire to commit fraud.”  (Id. at p. 530, 112 S.Ct. at p. 2624).   Since this court has already reasoned that plaintiffs' fraud by misrepresentation claim survives the preemptive effects of the Labeling Act, the claims of a conspiracy and concerted action “to misrepresent or conceal material facts concerning the health hazards of smoking” are not based upon a duty to warn and therefore are not preempted by the federal statute.  (Id.).

Although Cipollone (supra) did not involve claims under a consumer protection statute, several other courts have found that claims based upon these statutes are likewise not preempted.   For instance, the courts in Mangini v. R.J. Reynolds Tobacco Co., 7 Cal.4th 1057, 31 Cal.Rptr.2d 358, 875 P.2d 73 [1994] and in Castano v. American Tobacco Co., 870 F.Supp. 1425 [ED La 1994], addressed whether a claim under their respective consumer protection statutes was preempted.   In Mangini, the court determined that the predicate underlying plaintiffs' consumer protection statute claim was the duty “to not engage in unfair competition by advertising [cigarettes to minors] or encouraging others to violate the law.”  (7 Cal.4th at 1068, 875 P.2d at 80).   Following the Court's analysis in Cipollone, the Mangini court found that the phrase “based on smoking and health”, as stated in the Labeling Act, did not encompass the more general duty not to unfairly assist or advertise illegal conduct.  (Id.).  Likewise, in Castano v. American Tobacco, supra, the federal court held that the duty imposed under its consumer protection statute is much broader than a duty “based on smoking and health”.   (Id. at p. 1433).

 A similar finding must be reached under General Business Law §§ 349 and 350.   Because GBL § 349 is intended to prohibit all deceptive acts and practices, and its counterpart, GBL § 350, is aimed against false advertising, these claims are not predicated on a duty to warn, but upon a duty not to deceive or to make false statements.  (Governors' Bill Jacket Chap. 346 1980, Memorandum in Support of Legislation Assembly 7223-B).  Therefore, this court finds that plaintiffs' GBL §§ 349 and 350 claims are not preempted by the federal Labeling Act.

 As for contentions that plaintiffs' fraudulent concealment claim is dependent upon a duty to disclose, and thus preempted by the Labeling Act, this court finds that these contentions are inadequate to warrant a dismissal of plaintiffs' claims.   In Cipollone, supra, the Supreme Court stated that the claim for failure to warn is preempted if the claim is based upon the inadequacy of the warning with respect to smoking and health, or requires a showing that additional information should have been included in the manufacturer's advertising or promotions of cigarettes.  (505 U.S. at 524, 112 S.Ct. at 2621-2622).   Although New York law generally requires proof of a duty to disclose to sustain a fraudulent concealment or suppression claim (Swersky v. Dreyer & Traub, 219 A.D.2d 321, 326, 643 N.Y.S.2d 33), such a showing is not required where “in addition to nondisclosure of material facts one uses artifice, wiles, or deceptive conduct designed to throw the other party off his guard and lull him into a false sense of security.”  (60 N.Y. Jur2d, Fraud and Deceit, § 90;  Amend v. Hurley, 293 N.Y. 587, 59 N.E.2d 416;  Moser v. Spizzirro, 31 A.D.2d 537, 295 N.Y.S.2d 188, affd. 25 N.Y.2d 941, 305 N.Y.S.2d 153, 252 N.E.2d 632;  Perin v. Mardine Realty Co., Inc., 5 A.D.2d 685, 168 N.Y.S.2d 647, affd. 6 N.Y.2d 920, 190 N.Y.S.2d 995, 161 N.E.2d 210).   Here, if a duty to disclose, or to warn is found not an essential element of plaintiffs' fraudulent concealment claim, then the claim would not be preempted because plaintiffs would not have to challenge the adequacy of the warnings on cigarette packages.

Even if these claims require proof of a duty to disclose, the duty does not arise from any information missing in defendants' advertising or promotion, and therefore, preemption does not automatically attach.   The common thread running through the authorities cited above is that any affirmative steps taken by the defendants, such as might mislead the public regarding the consequences of smoking (making public statements, revealing that they are conducting research, etc.) triggers potential liability.   If the defendants did nothing but engage in garden variety advertising and promotion, the labeling statute might indeed grant them immunity from suit because absent affirmative steps, no further obligation to disclose could be imposed.   However, they have repeatedly made affirmative statements that go beyond mere advertising and promotion which alone can sustain a finding that a duty not to conceal has arisen.   Thus, this court cannot find that plaintiffs' fraudulent concealment claims are preempted as a matter of law.


Fraud and CPLR § 3016(b)

 Fraud is defined broadly to include any cunning, deception, or artifice employed by one person to deceive or gain an unfair advantage to the detriment of another.  (Cowles v. Board of Regents, 266 App.Div. 629, 633, 44 N.Y.S.2d 911).   It is well settled that the elements of a common-law claim for fraud are:  a representation or omission of a material fact, falsity, scienter, deception, and injury.  (60 N.Y. Jur 2d, Fraud and Deceit, § 11).   Fraud may be committed by suppression of the truth as well as by a misrepresentation.  (Kuelling v. Roderick Lean Mfg. Co., 183 N.Y. 78, 75 N.E. 1098;  Lukowsky v. Shalit, 110 A.D.2d 563, 487 N.Y.S.2d 781).   Allegations of a conspiracy or an agreement to commit an underlying wrong or fraudulent act merely “connect[s] nonactors, who might otherwise escape liability, with the acts of their coconspirators.”  (Burns Jackson Miller Summit & Spitzer v. Lindner, 88 A.D.2d 50, 72, 452 N.Y.S.2d 80, affd. 59 N.Y.2d 314, 464 N.Y.S.2d 712, 451 N.E.2d 459;  Reo v. Shudt, 144 A.D.2d 793, 794, 534 N.Y.S.2d 553).

 CPLR 3016(b) requires that to plead an action for fraud the circumstances constituting the wrong must be stated in detail.   Sufficient detail of the misconduct must be stated in order to clearly inform a defendant with respect to the incidents complained of.  (Foley v. D'Agostino, 21 A.D.2d 60, 63, 248 N.Y.S.2d 121).   Yet, the provision is not to be interpreted so strictly as to prevent an otherwise valid cause of action in situations where it may be impossible to state in detail the circumstances constituting the wrong.  (Lanzi v. Brooks, 43 N.Y.2d 778, 779, 402 N.Y.S.2d 384, 373 N.E.2d 278;  P.S. Auctions, Inc. v. Exchange Mut. Ins. Co., 105 A.D.2d 473, 480 N.Y.S.2d 610;  see, also, Foley v. D'Agostino, supra, 21 A.D.2d at 63, 248 N.Y.S.2d 121).   Here, under the circumstances, this court cannot dismiss the amended complaints at this stage in the proceedings since to do so might prevent otherwise potentially valid causes of action from being brought to trial.4

 Plaintiffs' pleadings contain all of the elements necessary to assert a cause of action for both fraud and violation of GBL §§ 349 and 350.   Contrary to defendants' argument that plaintiffs fail to allege facts showing a change in their position in reliance upon their fraudulent acts, affirmative action in reliance on a misrepresentation is not essential to an action for fraud.  (Hadden v. Consolidated Edison Co., 45 N.Y.2d 466, 470, 410 N.Y.S.2d 274, 382 N.E.2d 1136;  Stern Bros., Inc. v. New York Edison Co., 251 App.Div. 379, 381, 296 N.Y.S. 857;  Rothmiller v. Stein, 143 N.Y. 581, 38 N.E. 718;  See also, Marbury Management, Inc. v. Kohn, 629 F.2d 705 [2nd Cir.1980] ).   Fraud that induces nonaction where action would otherwise have been taken is as culpable as fraud that induces action that would otherwise have been withheld.  (Stern Bros., Inc. v. New York Edison Co., supra, 251 App.Div. at 381, 296 N.Y.S. 857;  Hadden v. Consolidated Edison Co., supra, 45 N.Y.2d at 470, 410 N.Y.S.2d 274, 382 N.E.2d 1136).

In each action, plaintiffs testified during class certification depositions that defendants lied to them and concealed information about the addictive qualities of nicotine, and that if they had known cigarettes were addictive they would not have started smoking or would have quit.   Several also testified that they did in fact rely on defendants' fraudulent statements made at the 1994 Congressional hearings and misleading statements made in the 1994 newspaper advertisements that touted the nonaddictive effects of nicotine.5  Moreover, testimony has been given which demonstrates that plaintiffs relied upon not one statement, omission, or act by defendants, but rather upon a cumulation of fraudulent statements and manipulative practices.   (See, Marcus v. Jewish Natl. Fund, 158 A.D.2d 101, 106, 557 N.Y.S.2d 886).

 The unpersuasive charges by the manufacturing defendants that the amended complaints do not allege the exact time and place of each misrepresentation, by whom and to whom they were made, and the substance of each alleged misrepresentation are not an appropriate basis under the circumstances to dismiss the amended complaints.  “Where the representations are made to the public at large for the purpose of influencing the action of anyone who may act upon those representations, a common-law cause of action for fraud lies in favor of any individual who acts upon them and is injured thereby.”  (Young v. Robertshaw Controls Co., 104 A.D.2d 84, 86, 481 N.Y.S.2d 891 appeal dismissed, 64 N.Y.2d 885, citing, Kuelling v. Lean Mfg. Co., 183 N.Y. 78, 85-86, 75 N.E. 1098, supra;  New York City v. Lead Indus. Assn., 190 A.D.2d 173, 177, 597 N.Y.S.2d 698, supra;  see also, Committee on Children's Television, Inc. v. General Foods Corporation, 35 Cal.3d 197, 197 Cal.Rptr. 783, 673 P.2d 660 [1983] ).   Here defendants are accused of much more than making mere misrepresentations to the public.   They purportedly used what they knew to be an addictive drug in order capture sales in the public market.   Meanwhile, information was allegedly being concealed and misrepresented so as to continue engaging in their manipulative activities.   Under these circumstances, the facts in the amended complaints have been stated “in sufficient detail to inform the defendants of the substance of the claims”, Limmer v. Medallion Group Inc., 75 A.D.2d 299, 302, 428 N.Y.S.2d 961, and therefore, the causes of action for fraud cannot be dismissed.

 As for GBL §§ 349 and 350 claims, Section 349(a) of the GBL declares as unlawful “[d]eceptive acts and practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state.”   To state a claim, a plaintiff needs to only show that a defendant has engaged “in acts or practices that are deceptive or misleading in a material way and that plaintiff has been injured by reason thereof.”   (Pension Fund v. Marine Midland Bank, 85 N.Y.2d 20, 25, 623 N.Y.S.2d 529, 647 N.E.2d 741 citing, Varela v. Investors Ins. Holding Corp., 81 N.Y.2d 958, 961, 598 N.Y.S.2d 761, 615 N.E.2d 218;  and Givens, Practice Commentaries, McKinney's Cons Laws of N.Y. Book 19 General Business Law § 349, at 565;  See also, McGill v. General Motors Corp., 231 A.D.2d 449, 647 N.Y.S.2d 209).   It is not necessary under the statute to submit proof of a defendant's intent to defraud, or of a plaintiff's justifiable reliance.  (Pension Fund v. Marine Midland Bank, supra at p. 26, 623 N.Y.S.2d 529, 647 N.E.2d 741).   However, proof that a material deceptive act or practice caused a plaintiff actual, although not necessarily pecuniary, harm is required to impose compensatory damages.  (Id.).  In defining “deceptive acts and practices”, the Pension Fund Court adopted “an objective definition” to include those acts or practices that are “likely to mislead a reasonable consumer acting reasonably under the circumstances 6 .”  (Id. at p. 26, 623 N.Y.S.2d 529, 647 N.E.2d 741).   It further held that “ [t]he scenario is quite different ․ where the business alone possesses material information that is relevant to the consumer and fails to provide this information.”   (Id., at p. 26, 623 N.Y.S.2d 529, 647 N.E.2d 741).

 Applying this test to the present cases, the representations and acts complained of are clearly the kind of “consumer oriented” conduct that falls within the statute.   Moreover, the remaining criteria have been satisfied by evidence that supports plaintiffs' numerous allegations that defendants purposefully manipulated their product to increase the addictive qualities of cigarettes.   Whether a “reasonable” consumer would have been mislead by defendants' deceptive practices is a factual issue that must be resolved at trial.   As the stated in Rogers v. R.J. Reynolds Tobacco Co., 557 N.E.2d 1045, 1054 [Ind.App. 1990] “[t]here is no basis for ․ judicially noticing what the ordinary consumer's knowledge concerning the addictive qualities of cigarettes may have been [because] [t]he state of knowledge attributable to the community ․ has changed over time.”   Thus, even assuming the addictive nature of nicotine was commonly known, evidence that defendants created a false controversy raises suspicions as to whether the information, although widely known, was commonly accepted.   Therefore, it is inconclusive whether a reasonable consumer in plaintiffs' circumstances might have been mislead by the defendants' conduct.

 As to the claims of violation of GBL § 350, the amended complaints allege several purportedly false advertisements upon which some of the plaintiffs relied.   And, given that “each of the amended complaints' causes of action embraces a forbidden type of deception ․ with sufficient factual specificity ․, so as to identify the transaction and indicate the theory of redress to enable the court to control the matter and the adversary to prepare”, this claim will not be dismissed.  (Guggenheimer v. Ginzburg, supra, 43 N.Y.2d 268, 275, 401 N.Y.S.2d 182, 372 N.E.2d 17 citing, Foley v. D'Agostino, supra, 21 A.D.2d 60, 62, 248 N.Y.S.2d 121).

Accordingly, the defendants' motions to dismiss are denied, and the parties are directed to proceed with the completion of discovery.

[Portions of opinion omitted for purposes of publication.]


1.   This memorandum decision disposes of the motions in the following actions:  Hoberman v. Brown & Williamson, Index No. 110953/96-motion sequence Nos. 003-007;  Small v. Lorillard Tobacco, Index No. 110949/96-motion sequence Nos. 002-004;  Frosina v. Philip Morris, Inc., Index No. 110950/96-motion sequence Nos. 002-004;  Zito v. American Tobacco, Index No. 110952/96-motion sequence Nos. 001-003;  and Hoskins v. R.J. Reynolds Tobacco, Index No. 110951/96-motion sequence Nos. 003-005.

2.   See, Arch v. The American Tobacco Company, Inc., 984 F.Supp. 830 [E.D.Pa. 1997];  State of Florida v. The American Tobacco Co., et. al., No. CL 95-14466 AH [Fla.Cir.Ct. Sept. 16, 1996], appeal noticed, October 16, 1996;  Smith v. Brown & Williamson Tobacco Corp., et. al., 1996 WL 751399 [W.D.Mo.1996];  Perez v. Brown & Williamson Tobacco Corp., Civ. No. C-97-070 [S.D.Tx. Mar. 7, 1997].

3.   While defendants argue that their statements are protected as commercial speech, and that the GBL provides a complete defense to one who complies with the rules of a federal statute, in this case the Labeling Act, in either circumstance, untruthful utterances, commercial or otherwise, are never entitled to such protection.  (Virginia Pharmacy Bd. v. Virginia Consumer Council, 425 U.S. 748, 96 S.Ct. 1817, 48 L.Ed.2d 346;  See also, the Court's analysis in Cipollone v. Liggett Group, Inc., supra 505 U.S. 504, 112 S.Ct. 2608, 120 L.Ed.2d 407).

4.   Although the parent company defendants, TI and CTR argue that the amended complaints fail to allege facts which state a claim against them, evidence suggests there was an industry-wide conspiracy in which the parent company defendants participated by agreeing to create, fund, and operate CTR and TI. Because of their participation in and concerted action with CTR and TI to disseminate fraudulent information, this court finds that a cause of action exists against them under a conspiracy theory, therefore, their motions to dismiss must be denied.  (Compare, NYC v. Lead Indus. Assn., 190 A.D.2d 173, 178, 597 N.Y.S.2d 698 citing, Farr v. Newman, 14 N.Y.2d 183, 250 N.Y.S.2d 272, 199 N.E.2d 369, Vandervelde v. Put & Call Brokers & Dealers Assn., 344 F.Supp. 118, 155 [S.D.N.Y.1972];  Phelps Dodge Ref. Corp. v. Federal Trade Commn., 139 F.2d 393, 396-397 [2nd Cir.1943] [finding that liability attaches to all those who actively participated in the scheme] ).

5.   Given that this court declines to judicially notice the addictive effects of nicotine as a matter of common knowledge, the issue of whether plaintiffs were reasonable in their reliance is a question of fact which goes to the merits of the claims, and thus, will not be addressed on the motions to dismiss.  (See, infra, at 427, 672 N.Y.S.2d at 611;  Yuzwak v. Dygert, 144 A.D.2d 938, 940, 534 N.Y.S.2d 35).

6.   Because this court finds that plaintiffs' allegations are sufficient to satisfy this objective test, it need not consider whether the Court intended Pension Fund (supra) to overturn its holding in Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 401 N.Y.S.2d 182, 372 N.E.2d 17 (supra).   In interpreting GBL and New York City's deceptive practices statute, the Guggenheimer Court found that “[i]n weighing a statement's capacity, tendency or effect in deceiving or misleading customers, we do not look to the average customer but to the vast multitude which the statutes were enacted to safeguard-including the ignorant, the unthinking and the credulous who, in making purchases, do not stop to analyze but are governed by appearances and general impressions.”  (Id. at 273, 401 N.Y.S.2d 182, 372 N.E.2d 17).


Copied to clipboard