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Chalk up another victory for Big Tobacco now that a federal appeals court has refused to revive an antitrust and civil RICO suit brought by 16 nonprofit hospitals in Pennsylvania to seek reimbursement of the costs of treating non-paying patients with tobacco-related diseases. In its 33-page opinion in Allegheny General Hospital v. Philip Morris Inc., the 3rd U.S. Circuit Court of Appeals held that “because the hospitals’ damages are too speculative and their injuries are too remote from the tobacco companies’ alleged wrongdoing, proximate cause is lacking, and thus the hospitals do not have standing to sue.” In the suit, the hospitals alleged that the tobacco companies and their trade associations engaged in a conspiracy lasting more than 40 years to manipulate the nicotine content in cigarettes and other tobacco products. They alleged that the tobacco companies also deceived and misled the public about the addictive properties of nicotine and the health risks of smoking. As a result, the suit alleged, many people used tobacco and developed lung cancer and other tobacco-related illnesses. And the hospitals, under a legal duty to give care to non-paying patients, say they expended significant resources treating these tobacco users. But U.S. District Judge Donetta W. Ambrose of the Western District of Pennsylvania dismissed the entire suit, finding that the hospitals’ federal antitrust and RICO claims were based on remote and indirect injuries and on an attenuated theory of causation and that they therefore lacked standing to bring those claims. Now the 3rd Circuit has upheld that ruling with an opinion that closely tracks its decision last year in Steamfitters Local Union No. 420 Welfare Fund v. Philip Morris, Inc. which rejected similar claims brought by union health and welfare funds. U.S. Circuit Judge Julio Fuentes said the hospitals’ allegations encompassed two theories — an indirect-injury theory and a direct-injury theory. Under the indirect-injury theory, the hospitals alleged that, through deception, the tobacco companies caused nonpaying patients to smoke, inducing significant tobacco-related diseases. The law required the hospitals to provide treatment to these patients regardless of their ability to pay for it, and therefore the tobacco companies’ wrongful acts increased the unreimbursed costs the hospitals incurred. Under the direct-injury theory, the hospitals alleged that the tobacco companies’ conspiracy to conceal information about the risks of tobacco and to prevent the development of safer cigarettes and alternative nicotine delivery devices hampered the hospitals’ efforts to reduce tobacco consumption among nonpaying patients. If the tobacco companies had not conspired, the suit said, the hospitals could have more effectively counseled patients to quit smoking or use safer products, reducing the health-care costs of treating tobacco-related disease. Fuentes, who was joined by U.S. Circuit Judge Dolores K. Sloviter and Richard L. Nygaard, found that the case “presents an issue of first impression in this circuit: whether hospitals, with a legal duty to provide unreimbursed medical care to nonpaying patients suffering from tobacco-related disease, have standing to assert antitrust and RICO claims against tobacco companies.” Besides Judge Ambrose’s decision, Fuentes said, only one other federal district court has directly considered the issue and it, too, dismissed the claim. Fuentes found that much of the court’s analysis was controlled by its prior decision in Steamfitters, a decision that is consistent with all the federal appellate courts that have considered whether health and welfare funds may bring such claims in the 2nd, 7th, 8th, 9th and 11th circuits. Only two district courts have decided otherwise, Fuentes said. In analyzing the antitrust and RICO claims, Fuentes found that the question of whether the hospitals have standing to sue depends on whether the tobacco companies’ alleged conspiracy proximately caused the hospitals’ injuries. And the question of proximate cause, he said, “depends on, and is intertwined with, the remoteness of those injuries.” The hospitals argued that their claims were different from those of the union health and welfare funds for a slew of reasons, but Fuentes said, “we only see three substantive ones.” While the union funds were financed through member dues or fees and voluntarily paid health-care providers to treat their members, Fuentes said, the hospitals have a legal duty to provide medical care to nonpaying patients; directly provide medical care, rather than pay another health-care entity to provide it; and provide care without reimbursement. But Fuentes rejected the argument that those differences gave the hospitals “quasi-governmental” standing. Instead, Fuentes agreed with the tobacco companies who argued that the hospitals, as private entities, lack the prerequisites of such standing — either an authorizing statute or government status. “Though the hospitals undoubtedly have an important role in today’s society, their status does not remotely approach that of a government,” Fuentes wrote. Turning to proximate cause, Fuentes said, the question was whether the tobacco companies “could have achieved their alleged aims without the existence of the hospitals or the relationship between the hospitals and the nonpaying patients.” Fuentes said they could because “the very existence of smokers would have given the tobacco companies more than sufficient reason to engage in a conspiracy to suppress information, safer tobacco products, and research, regardless of the existence of the hospitals.” Since the hospitals were not a “necessary step in effecting the ends of the alleged illegal conspiracy,” he said, proximate cause and standing for their antitrust claims do not exist. The hospitals insisted that the tobacco companies specifically intended to shift the costs of the nonpaying patients’ tobacco-related illnesses to the hospitals. But Fuentes said “the invocation of specific intent to harm does not automatically create standing. Intent is simply another factor supporting a finding of proximate cause.” Fuentes also agreed with Ambrose’s finding that the hospitals’ injuries did not fall within congressional antitrust concern because they involved only indirect costs from treating nonpaying patients — costs not incurred as a consumer or a competitor. Likewise, Fuentes agreed with Ambrose that the hospitals’ alleged damages are “speculative and uncertain.” In a last-ditch effort to save their claims, the hospitals argued that “justice and sound public policy” dictate that they have standing to sue. But Fuentes said, “we believe here that sound public policy argues against proximate cause and standing. When an injury is indirect, remote, and many steps away from the alleged cause, it is unadvisable to allow a case to proceed.” The hospitals, he said, “are dangerously close to asserting that they have standing to sue any company that causes a nonpaying patient’s disease or illness. For example, could the hospitals sue a group of auto manufacturers for the unreimbursed costs of treating nonpaying patients injured in car accidents, simply by alleging that the manufacturers conspired to keep defective vehicles on the road? We doubt that would be in the interests of public policy.” The hospitals were represented by attorneys Terrence J. O’Rourke, Sean O. Sheridan and Melissa L. Staggers of Nash & Co. in Pittsburgh. Philip Morris Inc. and Brown & Williamson were represented by Kenneth J. Parsigian and Christopher D. Moore of Goodwin Proctor & Hoar in Boston and Kevin C. Harkins of Cohen & Grigsby in Pittsburgh. Scott D. Livingston of Marcus & Shapira in Pittsburgh represented R.J. Tobacco Co.; Thomas Finarelli of Lavin Coleman O’Neil Ricci Finarelli & Gray in Philadelphia represented BAT Industries; and Howard M. Klein and William J. O’Brien of Conrad O’Brien Gellman & Rohn represented the Tobacco Institute and Lorillard Tobacco Co. Stephen J. Imbriglia of Hecker Brown Sherry & Johnson in Philadelphia represented the U.S. Tobacco Co.; Patrick W. Kittredge of Kittredge Donley Elson Fullem & Embick in Philadelphia represented the Council for Tobacco Research-USA; and Wilbur L. Kipnes of Schnader Harrison Segal & Lewis represented the Smokeless Tobacco Council Inc. Richard L. Kremnick of Blank Rome Comisky & McCauley represented Hill & Knowlton Inc.; and J. Kurt Straub of Obermayer Rebmann Maxwell & Hippel in Philadelphia represented the Liggett Group Inc.

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