Sanders v. Brown: state-action immunity and judicial protection of the Master Settlement Agreement.

• Author: Bauer, Robert W.

I. INTRODUCTION II. BACKGROUND A. A Brief History of Tobacco Litigation B. The MSA 1. The Purpose and Provisions of the Agreement 2. Litigation Spawned by the MSA 3. Sanders v. Brown III. ANALYSIS A. Deconstruction of Sanders v. Brown 1. Federal Preemption 2. First Prong of the Analysis i. 'Mandates or Authorizes Conduct" ii. 'Irresistible Pressure" 3. Second Prong of the Analysis i. Noerr-Pennington Immunity ii. Parker Immunity IV. CONCLUSION V. RECOMMENDATIONS I. INTRODUCTION

The Master Settlement Agreement (MSA) has been subject to critique, criticism, and judicial challenge since its signing in 1998. (1) While critics list a litany of problems with the MSA, the most prevalent charge is that it permits the settling tobacco companies to act as a "state-sanctioned cartel, passing on to consumers the costs of their estimated $206 billion damage payment and using the settlement structure to raise cigarette prices even higher." (2) Other criticisms have gone further, calling the MSA "a cartel in the most pristine sense." (3) This critique results from the fact that the MSA's provisions insulate the market shares of the participating tobacco manufacturers from usurpation by subsequent market entrants and ensure that consumers are the almost exclusive recipients of the costs of the agreement. (4)

In essence, critics argue that the settling tobacco companies used smoking consumers' money to purchase state permission to collusively increase cigarette prices, while at the same time suppressing competition. (5) Indeed, the MSA has been described as "law made in the course of an end-run around state and federal legislatures." (6) Given the voluminous scholarly criticism of the MSA--from its inception to its economic effects--the fact that the MSA has continually withstood judicial challenge is unsettling. As a last line of defense, state-action immunity defenses, which courts normally abjure, have routinely saved the MSA and its implementing statutes from being struck down. 7 While the courts upholding the MSA and its legislation are able to craft careful responses that withstand cursory review of the repeated challenges, a more critical analysis reveals major problems with the logic that courts employ.

This Note evaluates Sanders v. Brown, (8) the most recent judicial decision borne from the MSA, and deconstructs the court's analysis. This Note demonstrates the flaws in the judicial reasoning and unveils the ends-driven judicial logic that has perpetuated the MSA for over a decade. In Part II, this Note details a brief history of tobacco litigation, a necessary predicate to understanding what facilitated the signing of the MSA. Part III describes the functions of the provisions of the MSA and the practical effects of those provisions on tobacco producers and consumers. Part IV also briefly describes the litigation spawned subsequent to the signing of the MSA; more specifically, it describes the relevant factual background to the Sanders case. In Part V, this Note deconstructs the Sanders court's analysis en route to its dismissal of the complaint. This Note concludes that only ends-driven judicial reasoning perpetuates the MSA and protects it from federal preemption.

II. BACKGROUND

1. A Brief History of Tobacco Litigation

   Prior to the 1950s, the tobacco industry's reputation was largely undamaged by unpropitious media coverage or litigation. (9) Eva Cooper, a Massachusetts woman whose husband died of lung cancer, brought the first lawsuit against the tobacco industry in 1954; the suit charged R.J. Reynolds--one of the four major tobacco producers and a parry to the MSA (10)--with negligence and breach of warranty. (11) The court eventually dismissed Cooper's complaint, ruling "that there was no evidence [showing] that smoking caused cancer." (12) Thereafter, between the years of 1954 and 1994, plaintiffs brought over 800 suits against tobacco companies, resulting in only two favorable verdicts for plaintiffs, both of which were subsequently overturned on appeal. (13) During that period, tobacco companies escaped liability largely through their fiscal ability to "outspend" or "outlast" plaintiffs. (14)

   After years of unsuccessful litigation against the tobacco industry, 1994 signaled a turning point. (15) That year, Mississippi's Attorney General filed the first state lawsuit against a tobacco company to recover the costs of treating tobacco-related illness. (16) On the heels of that suit, the Florida legislature passed the Medicaid Third-Parry Liability Act (MTPLA). The MTPLA effectively deprived tobacco industry defendants of any then-existing common law affirmative defenses, introduced market share liability, replaced traditional notions of causation and damages with "statistical analysis," and disposed of the previous requirement that the state identify the individual recipients whose sicknesses were treated through state health care programs. (17) In addition, the MTPLA abolished the statute of repose defense, which then permitted the state to bring suit on claims which the passage of time had previously extinguished. (18)

   In 1994, Diane Castano, whose husband died of cancer, filed the largest potential class action suit up to that time against the American tobacco industry. (19) The Fifth Circuit reversed the district court's certification of the case, calling it "unmanageable," because it "would require consolidation of cases from the various states, each of which has different fraud and negligence laws, defenses and evidentiary rules." (20) However, by the time the Fifth Circuit reversed the certification, smokers had filed hundreds of individual suits, several class action suits, and secondhand smoke claims in state courts. (21)

   In 1994, Minnesota and West Virginia filed suit, and the Massachusetts legislature gave authorization for a recoupment suit. (22) In 1995, Florida and Massachusetts filed suit against the tobacco industry. (23) In 1996, 13 additional states brought suits, and in the first half of 1997, 20 more states brought suit. (24) By that point in time, tobacco companies were up against litigation "at virtually every level of political organization in a country consisting of one federal, fifty state, eight territory, 36,001 municipal, and 3,043 county governments." (25) As state-initiated litigation gathered steam, the tobacco companies came to the bargaining table. Four states--Florida, Minnesota, Texas, and Mississippi--reached settlements with the tobacco companies. (26)

2. The MSA

   1. The Purpose and Provisions of the Agreement

      In the mid-1990s, the situation for tobacco companies became increasingly grim. Essentially, by 1997, the tobacco industry was eyeing claims that were upwards of multibillion or trillion dollar amounts. (27) The group of plaintiffs was expanding with unparalleled rapidity, backed by each level of government, and "armed with daunting powers of sovereign authority, broad enforcement authority under various state and federal statutes and regulations, and which, as a group, held absolute regulatory power over the industry." (28)

      In June 1997, a group of tobacco lawyers, plaintiffs' attorneys, and attorneys general met in Washington, D.C. to work on a comprehensive agreement (the Resolution). (29) The anticipated amount of the settlement would have totaled about $368.5 billion over a 25 year span, with protection for all participating manufacturers from any civil liability resulting from class action suits, punitive damages, addiction claims, and any individual tort suits. (30) In addition, the Resolution would have granted the Food and Drug Administration (FDA) authority to regulate nicotine as an addictive drug. (31) The involved parties submitted the proffered legislation to Congress. (32) Based on the Resolution, the parties reported an amended bill to the Senate floor, which included higher payments for tobacco producers and less liability protection. (33) However, after a failed cloture vote, the bill died in June 1998. (34) As the likelihood of federal legislation dwindled, trial lawyers, tobacco representatives, and nine attorneys general--who represented diverse national regions, a variety of levels of animosity towards the tobacco industry, and varying stages in the litigation process-met secretly to negotiate a modified version of the Resolution. (35)

      The result was the MSA, which the parties signed on November 16, 1998. (36) The MSA was signed by the attorneys general of 46 states, five United States territories, the District of Columbia, and the four major tobacco and cigarette producers, or Original Participating Manufacturers (OPMs). (37) The ostensible purpose of the MSA from the perspective of the settling parties was twofold: "first, to recover state funds expended in treating tobacco-related illness through its Medicaid or state employee health insurance plan and second, to enjoin the tobacco companies from engaging in any marketing that may appeal to underage consumers of tobacco products." (38) Subsequent to the signing of the MSA, and pursuant to the agreement, the states dismissed the remaining suits against the tobacco companies. (39)

      The drafters designed the MSA to ensure greater regulatory control over the activities of tobacco companies as well as ensuring multi billion dollar yearly payments to the states in perpetuity. (40) The settlement was the "largest privately negotiated transfer of wealth arising out of litigation in world history." (41) Under the terms of the agreement, the four major tobacco companies have to pay the states billions of dollars each year. (42) The MSA requires tobacco companies to pay upwards of $200 billion to the states through the year 2023. (43) The formula for the total annual payments takes into account inflation as well as the annual number of cigarettes sold in the United States, the District of Columbia, and Puerto Rico. (44)

      Pursuant to the MSA, the cigarette manufacturers anticipated the need to...