Introduction

Title VII of the McCain Committee bill pertains to civil liability actions for tobacco-related injuries. Following the broad outlines of last summer's proposed settlement ("proposal") between the state attorneys general and the tobacco companies, Title VII purports to "settle" or prohibit some liability actions, while maintaining the ability of individual litigants to seek damages for health injuries caused by tobacco manufacturers. The damages such individuals may collect, however, are to limited by the annual cap established by sec. 706.

Although last summer's proposal purported to leave state tort actions in state courts, the proposal regulated state court procedures by prohibiting class actions and joined claims. It also permitted defendants to remove state law claims to federal court when state courts violated these procedural limitations. See proposal at p. 39. This apparent "federalization" of state court actions raised numerous constitutional issues.¹

The McCain Committee bill avoids many of these constitutional problem by more clearly and fully federalizing civil liability actions. Sec. 705(d) "deems" all civil liability actions against tobacco companies as actions arising under federal law. The bill thereby avoids the problems the original drafters faced in trying to maintain civil actions as state actions while prohibiting class actions and permitting a federal forum for the resolution of such claims. By claiming that all civil actions are federal actions, the committee bill does not need to engage in stealth federalism. Instead, it can rely on tried and true methods of federal preemption. As a result, many of the more convoluted and dubious provisions of the original proposal (which are more fully explained in Working Paper #3) are absent in the McCain Committee bill. 

On the other hand, a significant price has been paid for the constitutional cleanliness of the new bill. The McCain Committee bill more clearly treats all tort claims against tobacco manufacturers as federal actions. Thus the bill would result in an enormous preemption of state law, removing from the states a broad swath of their traditional police powers. By so doing, the bill removes many of the constitutional infirmities inherent in the earlier proposal. But it also enlarges the displacement of state power and eases the ability of Congress to enact future limitations on the rights of civil litigants. The bill would also expand the role of the federal courts, at the expense of the state courts. In an era of devolution, in which there is a renewed respect for the role of the states, these aspects of the bill are somewhat surprising.

Secs. 703 and 705: Preemption and the Federalization of Tobacco Tort Law

The basic structure of the civil liability provisions of the McCain Committee bill follow those laid out in the proposed national settlement. While settling the claims of the governmental entities, as well as the Castano class action litigants (see sec. 704), the bill purports to maintain the ability of private parties to bring tort claims (except those based purely on the fact of addiction -- see sec. 705(c)) against tobacco manufacturers (but not other entities, see sec. 705(b)). Damages awarded to plaintiffs in such actions will be subject to the annual liability cap, which may not exceed $6,500, 000, 000 (sec. 706(c)). Jurisdiction is to be concurrent between state and federal courts (sec. 705(a)). Importantly, in contrast to the proposal, there is no attempt to bar class actions or joined claims.

The bill's primary approach to federalism is to federalize all tobacco tort claims. This is apparent first from sec. 703, entitled "Preemption and Relationship to Other Law." It initially bars any "civil action involving a tobacco claim to which this title applies" except in "accordance with this title." This provision is complemented by sec. 705(a) which states that "Any tobacco claim in any civil action to which this title applies shall be deemed to arise under this section and shall be governed by the provisions of this title....." Hence, the drafters clearly want to assert that all tobacco liability claims shall be claims under the Act and shall be considered federal claims. Given the fact that tobacco is a good bought and sold in interstate commerce, the general ability of Congress to preempt state law claims should not be constitutionally troubling, even after the Supreme Court's more restrictive reading of the commerce clause in United States v. Lopez, 514 U.S. 549 (1995).

What is troubling about secs. 703 and 705, however, is the fact that their occupation of the field of tobacco liability is somewhat fictitious. Like the original proposal, the drafters appear to want to maintain the use of state law as the substantive law of decision in tobacco liability cases while otherwise federalizing tobacco claims. Thus after broadly preempting state law in sec. 703, the committee bill goes on to say that "This title supersedes State law only to the extent that State law is inconsistent with this title." See sec. 703(b). Since there are few substantive tort standards set forth in the statute, state tort standards will generally not be found inconsistent with the title and will clearly govern in tort claims. This conclusion is further supported by the fact that sec. 705(a) states that "the substantive rules of decision for such claim shall be derived from the law of the State or Tribe that would have been applicable but for the operation to this section, to the extent that such law is not inconsistent with the provisions of this title."

These limitations on the reach of federal law raise the question of whether sec. 705's initial attempt to "deem" all tobacco liability actions as federal actions is disingenuous. In essence the bill is attempting to call an action a federal action even though the overwhelming bulk of law to be applied will be state law. This raises the constitutional issue of whether the attempt to "deem" an action as a federal action will be sufficient to make it one that is "arising under" federal law for the purposes of Article III. If it is not, the bill's attempt to provide for concurrent jurisdiction between the federal and state courts will not succeed, except when there is diversity of citizenship.

While sec. 705 clearly pushes against the outer boundaries of Article III, it is likely that a court would find it constitutional. First, while most of the law applied will come from state law, there will be some federal issues potentially involved in all tobacco claims, such as whether the defendant is a proper party under sec. 705(b), or whether evidence has been produced within the meaning of sec. 705(d) (governing production of documents produced to the national depository established by the bill). Likewise, the ability of a plaintiff to collect upon any damages awarded will be governed by the liability cap provisions set forth in sec. 706. The fact that these possible federal issues could arise in any tobacco liability case is probably sufficient to establish Article III jurisdiction. See Osborne v. Bank of United States, 22 U.S. (9 Wheat.) 738 (1824). Moreover, a court may well that rule that the state's laws of decision that are to be applied under sec. 705 are to be applied as federal common law rules and hence can support the assertion of Article III jurisdiction. See Textile Workers Union v. Lincolm Mills, 353 U.S. 448 (1957)(state law rules are to be applied under sec. 301 of the Labor Management Relations Act as federal common law).

Nevertheless, even if the assertion of federal jurisdiction is constitutional, it remains problematic. In essence, the bill is asking federal courts to assume a new jurisdiction over issues of state law. This is troubling because as the Supreme Court has recently reminded us, federal courts cannot be the final arbiters of state law. Arizonans for Official English v. Arizona, ___U.S. ___, 117 S.Ct. 1055 (1997). Of course, federal courts are forced all the time, especially in diversity cases, to render decisions under state law. But in most situations, federal courts can rely on the decisions rendered by state courts to instruct them as to the meaning and content of state law. This may not be possible in the case of tobacco liability if the McCain Committee bill is enacted. In the past, the tobacco manufacturers have shown a substantial preference for federal forums, removing cases virtually whenever removal is possible. Under Sec. 705 removal will always be possible. Hence, every tobacco liability case may be adjudicated in federal court, leaving the federal courts without any state court tobacco decisions upon which to rely. While this would not be unconstitutional, it certainly would be inefficient and detrimental to the development of state common law.

Sec. 704: Scope of Coverage and Immunity

Sec. 704 of the committee bill specifies who may bring tobacco liability claims. Sec. 704(a) bars all claims brought by states, their political subdivisions, Indian tribes, or other entities operating in parens patriae. There are two exceptions: claims "to enforce the terms of the Master Settlement Agreement or a consent decree," sec. 704(b), and claims by any state which elects within one year of the date of enactment to opt out of receiving its share of the $196.5 billion in payments under section 401 of the bill. Sec. 702(c). Arguably, the latter exception means that sec. 704(a) should not be thought of as providing industry immunity but simply a facility for the settlement of state cases. However, there is nothing voluntary about the relinquishment of claims by political subdivisions and Indian tribes.

In addition, sec. 704(c)(1) settles "those claims asserted in the Castano Civil Actions, and all bases for any such claim under the laws of any State are preempted (including State substantive, procedural, remedial, and evidentiary provisions)." While "Castano Civil Actions" are not defined, and while some claims made in cases brought by the Castano Plaintiffs' Legal Committee could be interpreted as including personal injury or wrongful death claims, that is presumably not the intent. Thus, the following sentence provides that "The Castano Civil Actions shall be dismissed with full reservation of the rights of individual class members to pursue claims not based on addiction or dependency in civil actions in accordance with this Act." The remaining ambiguity is resolved by the definition of "Addiction claim; dependence claim" in sec. 701(1): "The term `addiction claim' or `dependence claim' refers only to any claim for relief which is predicated upon claims of addiction to, or dependence on, tobacco products, but neither term includes claims based upon manifestation of tobacco-related diseases."

Sec. 704(c)(1) states the quid pro quo for settling these claims as the smoking cessation grant program established in sec. 221 of the bill, and the various research activities envisioned elsewhere in the bill. An important additional benefit to putative class members in the various Castano class actions is that, if the statutes of limitations and repose which would otherwise be applicable to them had not run at the time of the filing of the relevant Castano class action, they will have one year from the effective date of the Act to file an individual action. Since the original Castano class action was a nationwide class action filed in March, 1994, this provision effectively extends the statutes of limitations and repose by at least five years. In light of this substantial benefit, in combination with the preservation of personal injury and wrongful death actions, sec. 704(c) may fairly be seen as a settlement, rather than an immunity provision. 

The same cannot be said for the two remaining types of immunity provided in the bill. 

The third such provision, sec. 706(c), provides that "The aggregate payments made by all participating tobacco product manufacturers in any calendar year may not exceed $6,500,000,000." This is an outright gift to the industry, perhaps in recognition of its extraordinary perverse achievements. While there is no stated quid pro quo, the argument is frequently made that this sweetener is needed to get the industry to agree to a "voluntary" protocol and to consent decrees, which in turn are needed to sustain the constitutionality of the bill's advertising restrictions and look-back provisions. This argument is discussed, and rebutted, in the sections of this paper which discuss these two sets of provisions.

This $6.5 billion cap does not (contrary to some published reports) increase in future years if not fully spent in past ones. Thus, if the industry pays only $5 billion in year one, it is capped at $6.5 billion (rather than $8 billion) in year two. If the annual cap was supposed to be measured by the industry's ability to pay, there is no reason why the industry should not be required to put the unused caps into a reserve. Furthermore, there is no reason even to believe that this cap exhausts the industry's ability to pay. Nor is there any reason why this industry, alone among all industries, should be protected from the ordinary legal consequences (including possible bankruptcy) of its fraudulent and outrageous conduct.

Finally, while the $6.5 billion liability cap will tend to protect the companies from bankruptcy, sec. 705(b), the fourth immunity provision, has the perverse effect of greatly increasing the likelihood that "tobacco companies" will declare bankruptcy. This section restricts "permissible defendants" in civil actions based on tobacco claims to "a tobacco product manufacturer" or its successor. Section 701(14), in conjunction with sec. 701(2), effectively defines "tobacco product manufacturer" to include only the domestic tobacco subsidiaries of the tobacco conglomerates. Despite the fact that these conglomerates purchased their other assets - Kraft, Nabisco, Philip Morris' international operations, etc. - with profits from sales to U.S. smokers, the bill effectively immunizes these other assets, leaving a drastically smaller asset and income base for use in paying off American tobacco claims. Thus if bankruptcy is a genuine concern, the bill's immunization of the great majority of "big tobacco's" asset base lowers the bankruptcy threshold to a fraction of what it would otherwise be. These sections, along with sec. 705(e)(1), also remove from the table the assets of other appropriate contributors to the industry's debt to its victims, such as co-conspiring law firms.

For the reasons discussed more fully in Working Paper #4,² these last two immunity provisions undermine the social purposes served by tort law: general deterrence, specific deterrence, and compensation.

Sec. 706 and the Injunction of State Courts

Section 706 establishes the procedures for implementing the liability cap and paying settlement and damage awards. Under sec. 706(d) a tobacco manufacturer can "commence an action to enjoin any State court proceeding to enforce or execute any judgment or settlement where payment has not been authorized under this section." Presumably this means a judgment that has not been registered with the Secretary of the Treasury as required under sec. 706(a), and is not above the cap established by sec. 706(c). However, the exact meaning of the phrase "not been authorized under this section" is not absolutely clear.

In contrast to S. 1530, however, sec. 706 does not appear to give any federal executive official the authority to review state court judgments.³ Moreover, under the McCain Committee bill, the federal court would appear to be authorized to issue an injunction only against a state court action in violation of sec. 706. This would appear to indicate that the federal court could not review, as it should not, the underlying validity of any state judgment. Moreover, the McCain Committee bill, in contrast to S. 1530, does not attempt to abrogate traditional doctrines of abstention or res judicata. Presumably a federal court would be free to apply these traditional doctrines to preserve appropriate respect and comity for state courts. Indeed, traditional application of those doctrines would suggest that only in unusual circumstances should federal courts intervene to enjoin an ongoing state procedure. This raises the question as to why the availability of injunctive relief is necessary here at all. After all, under the Act defendants have the ability to remove all civil claims against tobacco companies to federal court in the first place. Moreover, state courts are bound under the Supremacy Clause to apply federal law in all actions, including actions to execute judgments against tobacco companies. Finally, the appropriate relief for error by state courts is appeal through the state court systems and ultimately a petition for certiorari to the Supreme Court. Why the drafters of the McCain Committee bill believed that these typical mechanisms should not suffice in the case of tobacco claims, and why tobacco manufacturers require the ability to enjoin state actions to execute upon judgments is left unexplained.

Conclusion

The McCain Committee bill avoids many of the constitutional problems related to the treatment of state courts inherent in the proposed settlement between state attorneys general and tobacco manufactures. For the most part, the McCain Committee bill resolves these problems by disregarding complex and constitutionally dubious devices to federalize state court procedures in favor of the simpler and more traditional approach of simply preempting state liability actions. While the constitutionality of this approach is fairly secure, lawmakers reviewing the committee bill should still consider the implications of the extraordinarily broad preemption of state tort actions that would rescued from the committee bill's enactment. Furthermore, the immunity provisions of the McCain Committee bill undermine the social purposes served by tort law: general deterrence, specific deterrence, and compensation.

Professor Richard A. Daynard, President, TCRC, rdaynard@lynx.dac.neu.edu
Professor Wendy E. Parmet, Northeastern University School of Law Northeastern University School of Law, wparmet@nunet.neu.edu
 

REFERENCES

 
1 See Wendy E. Parmet, Judicial Federalism and the Proposed Tobacco Settlement, Working Paper #3 in a Series on Legal Issues in the Proposed Tobacco Settlement, Tobacco Control Resources Center, August 6, 1997 (hereinafter "Working Paper #3").

2 See Richard A. Daynard and John Rumpler, Changes to the Civil Justice System Under the Proposed Tobacco Settlement, Working Paper #4 in a Series on the Legal Issues in the Proposed Tobacco Settlement, Tobacco Control Resource Center, August 13, 1997.

3 See Wendy E. Parmet, Judicial Federalism and S. 1530, Working Paper #5 in a Series on Legal Issues in the Proposed Tobacco Settlement, Tobacco Control Resource Center, February 17, 1998.