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Blue Cross/Blue Shield of NJ v. Philip Morris - Complaint

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK

BLUE CROSS AND BLUE SHIELD OF
NEW JERSEY, INC., and its subsidiary, Medigroup of New Jersey, Inc. (d/b/a HMO Blue);

ASSOCIATED HOSPITAL SERVICE OF MAINE

(d/b/a Blue Cross and Blue Shield of Maine), and its subsidiaries, Machigonne, Inc. (d/b/a Benefit Management of Maine) and Benefit Management, Inc.;

BLUE CROSS AND BLUE SHIELD OF FLORIDA, INC., and its affiliates, Health Options, Inc. and Capital Group Health Services of Florida, Inc. (d/b/a Capital Health Plan);

BLUECROSS BLUESHIELD OF GEORGIA, INC.;

BLUE CROSS AND BLUE SHIELD OF MASSACHUSETTS, INC.;

BLUE CROSS BLUE SHIELD OF MICHIGAN;

BLUE CROSS & BLUE SHIELD OF RHODE ISLAND,

and its subsidiary, Coordinated Health Partners. Inc.;

BLUECROSS AND BLUESHIELD OF TENNESSEE, INC.;

CALIFORNIA PHYSICIANS' SERVICE (d/b/a Blue Shield of California), and its affiliates, CareAmerica -Southern California, Inc., CPIC Life Insurance Company, and CareAmerica Life Insurance Company;

CAPITAL BLUE CROSS,

and its subsidiaries, Capital Administrative Services, Inc. and Keystone Health Plan Central, Inc.;

CAREFIRST OF MARYLAND, INC.;

EMPIRE BLUE CROSS AND BLUE SHIELD;

GROUP HOSPITALIZATION & MEDICAL SERVICES, INC. (d/b/a Blue Cross Blue Shield of the National Capital Area);

HIGHMARK INC.,

and its subsidiaries, Keystone Health Plan West, Trans-General Services, Inc.; Trans-General Life Insurance Company, Trans-General Life and Casualty Insurance Company, Healthguard of Lancaster, Inc., Inter-County Health Plan, Inc., Inter-County Hospitalization Plan, Inc.;

INDEPENDENCE BLUE CROSS;

LOUISIANA HEALTH SERVICE & INDEMNITY COMPANY, INC.

(d/b/a Blue Cross and Blue Shield of Louisiana);

MOUNTAIN STATE BLUE CROSS & BLUE SHIELD, INC.,

and its subsidiary, Parker Benefits, Inc. (d/b/a Super Blue HMO);

NEW HAMPSHIRE-VERMONT HEALTH SERVICE

(d/b/a Blue Cross Blue Shield of New Hampshire), and its subsidiaries, Matthew Thornton Health Plan, Inc., Matthew Thornton Insurance, Inc., and Health Initiatives, Inc.;

NEW YORK CARE PLUS INSURANCE COMPANY, INC., (d/b/a Blue Cross and Blue Shield of Western New York, Blue Shield of Northeastern New York); and

UNYS, INC., and its subsidiaries, The Finger Lakes Companies, Inc. (and its subsidiaries, Finger Lakes Health Insurance Company, Inc. and Finger Lakes Medical Insurance Company, Inc.), Excellus, Inc. (and its subsidiary Excellus Health Plan, Inc.), and Upstate Holding Company, Inc. (and its subsidiary, Utica-Watertown Health Insurance Co., Inc.),

Plaintiffs, – against –

PHILIP MORRIS, INCORPORATED;

R.J. REYNOLDS TOBACCO COMPANY;

BROWN & WILLIAMSON TOBACCO CORPORATION;

B.A.T. INDUSTRIES P.L.C.;

BRITISH AMERICAN TOBACCO COMPANY, LTD.;

LORILLARD TOBACCO COMPANY;

LIGGETT & MYERS INC.;

UNITED STATES TOBACCO COMPANY;

THE TOBACCO INSTITUTE, INC.; THE COUNCIL FOR TOBACCO RESEARCH -U.S.A., INC.;

THE SMOKELESS TOBACCO RESEARCH COUNCIL, INC.;

HILL AND KNOWLTON, INC.;

and

UNKNOWN CORPORATIONS A-Z,

Defendants.

COMPLAINT (JURY DEMAND)

Plaintiffs, twenty independent Blue Cross and/or Blue Shield Plans (collectively, the "BC/BS Plans"), which provide comprehensive health plan and benefit financing and related services to millions of Americans (referred to herein as their "members"), including health plan benefits for smoking-related illnesses, by and through their counsel of record, Dewey Ballantine LLP, for their complaint against Defendants in this action -- the major tobacco companies in the United States (collectively, the "Tobacco Companies") and their trade associations, research agents and public relations firm -- allege as follows:

I. NATURE OF THIS ACTION

Summary of Plaintiffs' Claims

1. These BC/BS Plans, together with all other Blue Cross and Blue Shield plans, have for decades paid for a broad range of health care benefits and related services to hundreds of millions of Americans and today serve more than 68 million people as the largest non-governmental provider of health benefit plans and related services in the country. The BC/BS Plans have since their inception been dedicated to furnishing their members with comprehensive, economical and timely access to health care benefits.

2. As the direct and proximate cause of the Tobacco Companies' and other Defendants' ongoing conspiracy and deceptive, illegal and tortious acts described herein, the BC/BS Plans have suffered and are suffering extraordinary injury in their business and property, having been required to expend many millions of dollars on costs attributable to tobacco-related diseases caused by Defendants. This action seeks to hold the Tobacco Companies and other Defendants accountable for that conduct.

3. In 1953, the Tobacco Companies and their allies entered into a conspiracy that continues to this day -- a conspiracy that was intended, with great success, to perpetuate smoking and nicotine addiction among American citizens. From the outset, the Tobacco Companies and the other Defendants knowingly and intentionally embarked on a scheme to addict millions of people, including members of the BC/BS Plans, to smoking cigarettes and other tobacco products -- all with the intent of increasing their annual profits. As a result, millions of Americans have died and millions more will die. As part of their continuing conspiracy, the Tobacco Companies and their allies also intended to force and, again with great success, have forced others to bear the cost of the diseases and deaths caused by the conspiracy. Blue Cross Blue Shield plans are perhaps the largest cost-bearers of Defendants' deceptions and wrongful conduct.

4. The Tobacco Companies have known for decades, as a result of their internal scientific studies, that (i) nicotine is addictive; (ii) cigarettes serve primarily as devices to deliver nicotine into people's blood streams; (iii) smoking and chewing tobacco cause or substantially contribute to a myriad of debilitating illnesses, including lung, throat and other cancers, emphysema, heart failure and stroke; and (iv) millions of people die as a result of using tobacco products. They have also known for decades that full public awareness of the truth about their products would have a devastating impact on their financial performance, and ultimately their profits, which, in their view, has counted for much more than appropriate public disclosure concerning the deadly and addictive products they have been purveying. Defendants intended to, did, and continue to impose on health care payers, such as the BC/BS Plans, the enormous cost of treatment of tobacco-related illnesses and addiction. Through their conspiracy of lies, deceit and other unlawful conduct, the Tobacco Companies have avoided paying such health care costs and, as a result, have unlawfully shifted a large amount of such costs to the BC/BS Plans.

5. Smoking-related illnesses account for one out of every five deaths each year in the United States; cigarette smoking is thus the leading cause of premature death in this country, killing more than 400,000 Americans annually. The ruinous health impact caused by the Tobacco Companies' products is unprecedented. For example: (1) cigarette smoking causes as much as 85% of all lung cancer; (2) smoking causes more than 80% of deaths from pulmonary diseases, such as emphysema and bronchitis; and (3) smoking causes thousands of deaths from cardiovascular diseases, such as stroke, heart attack, peripheral vascular disease and aortic aneurysm. All told, annual smoking-related deaths exceed the combined deaths caused by automobile accidents, AIDS, alcohol use, illegal drug use, homicide, suicide and fires.

6. Commencing in 1953, the Tobacco Companies conspired to and did embark upon a massive and prolonged program of purposeful deception and misrepresentation and unreasonable restraint of trade that continues to this day. Repeatedly, they have made and continue to make knowingly false public pronouncements -- and have given knowingly false sworn testimony -- to the effect that they were in possession and had knowledge of no evidence that nicotine is addictive or that the use of their tobacco products caused any illnesses or diseases. This was exactly the nature of the blatantly false testimony provided by chief executives of a number of the Tobacco Companies in 1994 before a committee of the U.S. House of Representatives. Even today as the Tobacco Companies attempt to use their political muscle to enact legislation immunizing their legal liabilities, the Tobacco Companies continue to mislead Congress about their knowledge of the deadly and addictive nature of smoking and chewing tobacco. This campaign continues today through, among other things, the use of scare tactics and misleading statements published in nationally-circulated newspapers and magazines. Such statements were published as recently as April 1998. Through this public campaign of deception and lying to Congress and other public health authorities, the Tobacco Companies and other Defendants intended that, among others, the BC/BS Plans and their members would rely to their detriment on such statements and that as a result the BC/BS Plans would be required to bear a large share of the cost of the national health calamity knowingly and intentionally caused by the Tobacco Companies.

7. Defendants rationalize that smoking is a matter of individual choice. In fact, the American public has never been given an opportunity to make a well-informed choice about smoking because Defendants' own deception has prevented the public from fully understanding the depth and severity of the addictive nature of cigarettes and other tobacco products. For example, in an internal 1978 memorandum, Defendant Brown & Williamson Tobacco Corporation acknowledged that "very few consumers are aware of the effects of nicotine, i.e., its addictive nature and that nicotine is a poison."

8. The Tobacco Companies' and the other Defendants' conspiracy went further and relied on a subtler campaign of subterfuge. While falsely claiming that their products were becoming healthier, they spent millions of dollars on research to ensure that their products continued to contain addictive amounts of nicotine. While falsely claiming to assume a public duty with regard to the relationship between smoking and health, they actually concentrated their efforts on marketing methods that were meant to increase nicotine consumption and addiction. Targeting children and minorities has been and continues to lie at the foundation of the Tobacco Companies' plot to increase tobacco and nicotine consumption and to ensure that they capture an addicted customer base for the future. The Tobacco Companies have known for years that, as a result of their ongoing illegal conduct and conspiracy, millions of addicted smokers would be unable to quit smoking and would be customers until the smoking killed them.

9. The Tobacco Companies also have violated the antitrust laws of the United States and of the states, laws that protect competition over quality and innovation just as they protect price competition. Defendants have broken these laws by entering into, and continuing to this day to abide by the terms of, a combination and conspiracy in unreasonable restraint of trade:

to suppress innovation and competition in product quality -- by agreeing not to engage in research, development, manufacturing and marketing of less harmful cigarettes and other tobacco products;

to suppress output in a market, and to engage in a concerted refusal to deal -- by agreeing to zero output of less harmful cigarettes and other tobacco products; and

to suppress competition in marketing -- by agreeing not to take business from one another by making claims as to the relative safety of particular brands, whether or not such claims would have been truthful.

This willful violation of the antitrust laws resulted in clearly foreseeable injury to members of the BC/BS Plans. It was foreseeable that their antitrust violations would cause the precise type of injury that the BC/BS Plans have suffered in their business or property -- increased costs for health care and related services needed by smokers -- injury that is inextricably intertwined with that suffered by the smokers themselves. Moreover, but for the unlawful agreement, the BC/BS Plans would have had the opportunity to be customers for less harmful cigarettes, and other tobacco or nicotine products, purchasing such products as part of an effort by providers of health services with which the BC/BS Plans contract, to wean their members from addiction to smoking or using other tobacco products to ameliorate the consequences of that addiction.

10. In this action, the BC/BS Plans intend to bring the Tobacco Companies to account for the business and financial injuries, primarily in the form of payments for treatments of tobacco-related diseases, that the BC/BS Plans have suffered as a direct and proximate result of Defendants' decades-long conspiracy of deceit, manipulation and death.

Nature of Plaintiffs' Business

11. Blue Cross and Blue Shield plans are independent licensees of the Blue Cross and Blue Shield Association, through which the Blue Cross and Blue Shield plans, including Plaintiffs, license the right to use the Blue Cross® and Blue Shield® names and symbols. Blue Cross and Blue Shield plans and their predecessors have been providing health care insurance coverage, and other related services, to their members since the beginning of the 1900s. Today, the BC/BS Plans, together with all other Blue Cross Blue Shield plans, constitute the largest private provider of health plan benefits and payer of health care benefits in the United States, paying for health care financing for more than 68 million people.

12. The Blue Cross and Blue Shield plans, including Plaintiffs, are independent, locally-operated companies, that provide health plan benefits and related services with their corporate affiliates, within defined geographic regions, in most cases based on state lines. The first Blue Cross and Blue Shield plans -- in Texas and the Pacific Northwest -- were created to provide access to hospital and physician services for the segment of the population that could not afford private medical services.

13. Throughout their histories, many Blue Cross and Blue Shield plans have been "insurers of last resort" in their respective states. To the extent that a Blue Cross Blue Shield plan has been an "insurer of last resort," it provided health care insurance coverage and other services to any individual regardless of that person's medical condition. This open-door policy -- mandated by state law -- has had the effect of causing those Blue Cross Blue Shield plans to insure a disproportionately higher number of individuals with smoking-related diseases. Through their deceptive and unlawful conduct, the Tobacco Companies and other Defendants have increased the costs of all Blue Cross Blue Shield plans and disproportionately increased the costs of those plans who are or have been "insurers of last resort."

14. The Blue Shield symbol was informally adopted in 1948 by a group of nine health care contractors, all dedicated to making health care benefits more economical and available to the American public. This group increased its numbers and eventually became the National Association of Blue Shield Plans, which was formed to hold and license the Blue Shield symbol and related marks to independent physician-sponsored health care plans.

15. Meanwhile, the Blue Cross symbol became a nationally recognized symbol for health care plans that would guarantee payment of covered hospital charges in consideration for periodic payments by members. In 1962, these plans formed the Blue Cross Association to hold and license the Blue Cross symbol and related marks to independent hospital health care plans. In 1982, the Blue Shield and Blue Cross Associations merged to enable independent Blue Cross and Blue Shield plans to serve their members more economically and efficiently.

16. The BC/BS Plans directly contract with thousands of health care service providers, including doctors, clinics, hospitals, and other health care providers (collectively referred to herein as "health care providers"). The BC/BS Plans are purchasers of products and services used in, and are providers of benefits for, treatment of nicotine dependence and addiction. The BC/BS Plans also make payments as claims administrators acting on behalf of group health plans. As a provider of health benefit plans and related services, the BC/BS Plans have paid and will continue to pay the cost of health care services required in connection with smoking-related diseases.

17. The BC/BS Plans also contract directly with individuals, employee and other groups, associations and labor groups in their specific service areas across the United States to provide health plan benefits and related services through risk and risk sharing arrangements. The BC/BS Plans bear risk in entering into contracts with groups and individuals because the BC/BC Plans have paid and continue to pay for their members' covered health care costs, regardless of the total amount of costs for those services. The BC/BS Plans also enter into contracts to act as claims administrators for and to make payments on behalf of health plans that are wholly or partially self-funded. The BC/BS Plans charge and collect an amount from their groups and individuals for providing health care coverage and related services under these services arrangements.

18. Under applicable laws and regulations in many states, the Blue Cross Blue Shield plans are required to offer to private groups various types of health coverage and benefits that include coverage for the treatment of tobacco-related diseases. In furtherance of their contractual obligations to groups and individuals, the BC/BS Plans have paid and will continue to pay substantially higher amounts to health care providers, including amounts paid on behalf of self-funded groups. The BC/BS Plans have also paid and will continue to pay substantially higher amounts for drugs and other products and services which aid in the treatment of nicotine addition. These increased expenditures have been caused by the unlawful actions of the Tobacco Companies and other Defendants.

19. In addition, many of the Blue Cross Blue Shield plans have expended and will continue to expend substantial sums of money to fund and promote wellness and healthy lifestyle programs in order to reduce health care costs. These increased expenditures have also been caused by the unlawful actions of the Tobacco Companies and other Defendants.

II. JURISDICTION AND VENUE

20. Jurisdiction of this Court is predicated upon federal question jurisdiction, 28 U.S.C. § 1331, and the original jurisdiction granted under 28 U.S.C. § 1337(a). Jurisdiction is based on 15 U.S.C. §§ 15 and 26 (the Clayton Act) and 18 U.S.C. §§ 1962 and 1964 (Federal Racketeer Influenced and Corrupt Organizations Act ("RICO")).

21. The Court has supplemental jurisdiction under 28 U.S.C. § 1367(a) over Plaintiffs' state law claims because they are so related to the federal question claims that they form part of the same case or controversy and stem from the same nucleus of facts on which the federal antitrust and RICO claims are based.

22. At all times material hereto, the Defendants resided and did business in this District. Venue is thus proper in this District under 28 U.S.C. § 1391(b). Moreover, at all times material hereto, the Defendants were found or transacted business in this District, and accordingly venue is proper in this District under 15 U.S.C. § 22 and 18 U.S.C. § 1965.

III. THE PARTIES

Plaintiffs

23. Plaintiff Blue Cross Blue Shield of New Jersey, Inc. ("BC/BS New Jersey") is a not-for-profit corporation incorporated under the laws of the State of New Jersey, with its principal place of business located at 3 Penn Plaza East, Newark, New Jersey. Plaintiff Medigroup of New Jersey, Inc. (d/b/a HMO Blue) is a subsidiary of BC/BS New Jersey and is a New Jersey corporation with its principal place of business located at 3 Penn Plaza East, Newark, New Jersey. For over 65 years, BC/BS New Jersey and its predecessor companies have been providing health care insurance coverage to the citizens of New Jersey and, up until 1992, was the State of New Jersey's "insurer of last resort" in the individual insurance market. As an "insurer of last resort," BC/BS New Jersey was required to provide health care insurance coverage to any person regardless of his or her medical condition. Today, BC/BS New Jersey is, with its corporate affiliates, the largest provider of health plan benefits and related services in New Jersey. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS New Jersey has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

24. Associated Hospital Service of Maine, doing business as Blue Cross and Blue Shield of Maine (referred to herein as "BC/BS Maine"), is a non profit hospital and medical service organization formed and existing under the laws of the State of Maine, with its principal place of business located at 2 Gannett Drive, South Portland, Maine. Plaintiffs Machigonne, Inc., doing business as Benefit Management of Maine, and Benefit Management, Inc., doing business as MHP, are subsidiaries of Associated Hospital Service of Maine and both are Maine corporations with their principal places of business located at 110 Free Street, Portland, Maine. BC/BS Maine and its subsidiaries are collectively referred to herein as "BC/BS Maine." BC/BS Maine is the largest provider of health plan benefits and related services in Maine. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Maine has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

25. Plaintiff Blue Cross and Blue Shield of Florida, Inc. is a mutual insurance company incorporated under the laws of the State of Florida, with its principal place of business located at 4800 Deerwood Campus Parkway, Jacksonville, Florida. Plaintiff Health Options, Inc. is an affiliate of Blue Cross and Blue Shield of Florida, Inc. and is a Florida corporation with its principal place of business also located at 4800 Deerwood Campus Parkway, Jacksonville, Florida. Plaintiff Capital Group Health Service of Florida, Inc. (d/b/a Capital Health Plan) is an affiliate of Blue Cross and Blue Shield of Florida, Inc. and is a Florida corporation with its principal place of business at 2140 Centerville Place, Tallahassee, Florida. Blue Cross and Blue Shield of Florida, Inc. with its corporate affiliates (collectively "BC/BS of Florida") is one of the largest providers of health plan benefits and related services in Florida. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Florida has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

26. Plaintiff BlueCross and BlueShield of Georgia, Inc. ("BC/BS Georgia") is a corporation incorporated under the laws of the State of Georgia, with its principal place of business located at 3350 Peachtree Road, N.E., Atlanta, Georgia. BC/BS Georgia, with its corporate affiliates, is the largest provider of health plan benefits and related services in Georgia. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Georgia has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

27. Plaintiff Blue Cross and Blue Shield of Massachusetts, Inc. ("BC/BS Massachusetts") is a non-profit hospital service corporation and a medical service corporation incorporated under the laws of the Commonwealth of Massachusetts, with its principal place of business located at 100 Summer Street, Boston, Massachusetts. BC/BS Massachusetts is one of the largest providers of health plan benefits and related services in Massachusetts. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Massachusetts has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

28. Plaintiff Blue Cross Blue Shield of Michigan ("BC/BS Michigan") is a non-profit corporation incorporated under the laws of the State of Michigan, with its principal place of business located at 600 Lafayette East, Detroit, Michigan. BC/BS Michigan and its corporate affiliates are the largest provider of health plan benefits and related services in Michigan. BC/BS Michigan is the "insurer of last resort" in the State of Michigan. As a result, BC/BS Michigan is required to provide health care insurance coverage to any person regardless of his or her medical condition. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members and pursuant to the Michigan Non Profit Health Care Corporation Act, BC/BS Michigan and its affiliates have paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

29. Plaintiff Blue Cross & Blue Shield of Rhode Island is a non-profit, hospital service corporation incorporated under the laws of the State of Rhode Island, with its principal place of business located at 444 Westminster Street, Providence, Rhode Island. Plaintiff Coordinated Health Partners, Inc. is a wholly-owned subsidiary of Blue Cross & Blue Shield of Rhode Island and is a health maintenance organization formed and existing under the laws of the State of Rhode Island, with its principal place of business located at 15 LaSalle Square, Providence, Rhode Island. Blue Cross & Blue Shield of Rhode Island and its subsidiary are collectively referred to herein as "BC/BS Rhode Island." BC/BS Rhode Island is the largest provider of health plan benefits and insurance coverage and related services in Rhode Island. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Rhode Island has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

30. Plaintiff BlueCross BlueShield of Tennessee, Inc. ("BC/BS Tennessee") is a non-profit corporation incorporated under the laws of the State of Tennessee, with its principal place of business located at 801 Pine Street, Chattanooga, Tennessee. BC/BS Tennessee is, with its corporate affiliates, the largest provider of health plan benefits and related services in Tennessee. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Tennessee and its corporate affiliates have paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

31. Plaintiff California Physicians' Service, doing business as Blue Shield of California ("Blue Shield California"), is a not-for-profit mutual benefit corporation incorporated under the laws of the State of California, with its principal place of business located at 50 Beale Street, San Francisco, California. Plaintiff CareAmerica - Southern California, Inc. is an affiliate of Blue Shield California and is a California corporation with its principal place of business located at 6300 Canoga Avenue, Woodland Hills, California. Plaintiff CPIC Life Insurance Company is an affiliate of Blue Shield California and is a California corporation with its principal place of business located at 50 Beale Street, San Francisco, California. CareAmerica Life Insurance Company is an affiliate of Blue Shield California and is a California corporation with its principal place of business located at 6300 Canoga Avenue, Woodland Hills, California. Blue Shield California and its affiliates are collectively referred to herein as "Blue Shield California." Blue Shield California is, with its corporate affiliates, one of the largest providers of health plan benefits and insurance coverage and related services in California. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, Blue Shield California has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

32. Plaintiff Capital Blue Cross ("Capital") is a not-for-profit corporation incorporated under the laws of the Commonwealth of Pennsylvania, with its principal place of business located at 2500 Elmerton Avenue, Harrisburg, Pennsylvania. Plaintiff Capital Administrative Services, Inc. (d/b/a NCAS Pennsylvania) is a wholly-owned subsidiary of Capital Blue Cross and is a Pennsylvania corporation, with its principal place of business located at Harrisburg, Pennsylvania. Plaintiff Keystone Health Plan Central, Inc. is jointly owned by Capital Blue Cross and plaintiff Highmark Inc. and is a Pennsylvania corporation, with its principal place of business located in Camp Hill, Pennsylvania. Capital is, with its corporate affiliates, the largest provider of health plan benefits and related services in Central Pennsylvania. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, Capital has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

33. Plaintiff CareFirst of Maryland, Inc., doing business as Blue Cross and Blue Shield of Maryland ("BC/BS Maryland"), is a not-for-profit corporation incorporated under the laws of the State of Maryland, with its principal place of business located in Owings Mills, Maryland. BC/BS Maryland is, with its corporate affiliates, the largest provider of health plan benefits and related services in Maryland. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Maryland has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

34. Plaintiff Empire Blue Cross and Blue Shield ("Empire") is a not-for-profit corporation incorporated under the laws of the State of New York, with its principal place of business at 622 Third Avenue, New York, New York. Empire is, with its corporate affiliates, one of the largest providers of health plan benefits and related services in New York. Prior to July 1, 1993, Empire was the insurer of last resort in the small group market in New York, and prior to July 1, 1997, Empire was the insurer of last resort in the direct pay market in New York. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, Empire has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

35. Plaintiff Group Hospitalization & Medical Service, Inc., doing business as Blue Cross Blue Shield of the National Capital Area (collectively, "BC/BS NCA"), is a federally-chartered not-for-profit corporation incorporated by an Act of Congress, with its principal place of business located at 550 12th Street, S.W., Washington, D.C. BC/BS NCA operates in the Greater Washington D.C. area, including, the District of Columbia, Maryland, and Virginia. BC/BS NCA is, with its corporate affiliates, the Greater D.C. area's largest provider of health plan benefits and related services. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS NCA has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

36. Plaintiff Highmark Inc., doing business as Highmark Blue Cross Blue Shield ("Highmark"), is a not-for-profit corporation incorporated under the laws of the Commonwealth of Pennsylvania, with its principal place of business located at Fifth Avenue Place, Pittsburgh, Pennsylvania. Plaintiff Keystone Health Plan West is a wholly-owned subsidiary of Highmark and is a Pennsylvania corporation, with its principal place of business located at Fifth Avenue Place, Pittsburgh, Pennsylvania. Plaintiff Trans-General Services, Inc. is a wholly owned subsidiary of Highmark and is a Pennsylvania corporation, with its principal place of business located at Fifth Avenue Place, Pittsburgh, Pennsylvania. Plaintiff Trans-General Life Insurance Company is a wholly-owned subsidiary of Highmark and is a Connecticut corporation, with its principal place of business located at Fifth Avenue Place, Pittsburgh, Pennsylvania. Plaintiff Trans-General Life and Casualty Insurance Company is a wholly-owned subsidiary of Highmark and is a Pennsylvania corporation, with its principal place of business located at Fifth Avenue Place, Pittsburgh, Pennsylvania. Plaintiff Healthguard of Lancaster, Inc. is a wholly-owned subsidiary of Highmark and is a Pennsylvania corporation, with its principal place of business located at 280 Granite Run Drive, Lancaster, Pennsylvania. As described above, plaintiff Keystone Health Plan Central, Inc. is jointly owned by Capital and Highmark. Plaintiffs Inter-County Health Plan, Inc. and Inter-County Hospitalization Plan, Inc. are Pennsylvania non-profit, non-stock membership corporations with their principal places of business located at 720 Blair Mill Road, Horsham, Pennsylvania. Highmark Inc. and Independence Blue Cross are the sole members. Highmark and its subsidiaries are collectively referred to herein as "Highmark." Highmark is, with its corporate affiliates, the largest provider of health care benefits and related services in Pennsylvania. As a provider of health care benefits and other services to individuals and employee and other groups and as a direct payer of health plan costs incurred by its members, Highmark has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

37. Plaintiff Independence Blue Cross ("Independence") is a not-for-profit corporation incorporated under the laws of the Commonwealth of Pennsylvania, with its principal place of business located at 1901 Market Street, Philadelphia, Pennsylvania. Independence is the largest provider of health plan benefits and related services in its service area, which includes the Greater Philadelphia Area. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, Independence has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases and treatment for nicotine addiction.

38. Plaintiff Louisiana Health Service & Indemnity Company, Inc. is a non-profit mutual insurance company incorporated under the laws of the State of Louisiana, with its principal place of business located at 5525 Reitz Avenue, Baton Rouge, Louisiana. Louisiana Health Service & Indemnity Company, Inc. does business under the name Blue Cross Blue Shield of Louisiana. Louisiana Health Service & Indemnity Company, Inc. is referred to herein as "BC/BS Louisiana." BC/BS Louisiana is, with its corporate affiliates, the largest provider of health care benefits and related services in Louisiana. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS Louisiana has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

39. Plaintiff Mountain State Blue Cross & Blue Shield, Inc. ("Mountain State") is a not-for-profit corporation incorporated under the laws of the State of West Virginia, with its principal place of business located at 700 Market Square, Parkersburg, West Virginia. Plaintiff Parker Benefits, Inc. (d/b/a SuperBlue HMO) is a wholly-owned subsidiary of Mountain State and is a West Virginia corporation, with its principal place of business located in Parkersburg, West Virginia. Mountain State and Parker Benefits, Inc. are collectively referred to herein as "Mountain State." Mountain State is, with its corporate affiliates, the largest provider of health plan benefits and related services in West Virginia. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, Mountain State has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

40. Plaintiff New Hampshire-Vermont Health Service is a non-profit health service corporation, incorporated under the laws of the State of New Hampshire, with its principal place of business located at 3000 Golf Falls Road, Manchester, New Hampshire. New Hampshire-Vermont Health Service does business as Blue Cross Blue Shield of New Hampshire. New Hampshire-Vermont Health Service's wholly-owned subsidiary, plaintiff Matthew Thornton Health Plan, Inc. ("MTHPI"), is a health maintenance organization organized under New Hampshire law with its principal place of business located at 43 Constitution Drive, Bedford, New Hampshire. Plaintiffs Matthew Thornton Insurance, Inc. and Health Initiatives Inc. are wholly-owned subsidiaries of MTHPI (with the same principal place of business) and are corporations incorporated under New Hampshire law. New Hampshire-Vermont Health Service and its subsidiaries are collectively referred to herein as "BC/BS New Hampshire." BC/BS New Hampshire is, with its corporate affiliates, the largest provider of health plan benefits and related services in New Hampshire. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, BC/BS New Hampshire has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

41. Plaintiff New York Care Plus Insurance Company, Inc. ("New York Care") is a non-profit corporation incorporated under the laws of the State of New York, with its principal place of business located at 1901 Main Street, Buffalo, New York. New York Care does business under several trade names including, but not limited to, Blue Cross and Blue Shield of Western New York and Blue Shield of Northeastern New York. New York Care and its corporate affiliates provide health care benefits and related services to more than 660,000 members in the State of New York. As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, New York Care has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

42. Plaintiffs UNYS, Inc. and its wholly-owned subsidiaries, Plaintiffs The Finger Lakes Companies, Inc. ("Finger Lakes"), Excellus, Inc. ("Excellus"), and Upstate Holding Company, Inc. ("Upstate") are not-for-profit holding companies incorporated under the laws of the State of New York, with its principal place of business located at 150 East Main Street, Rochester, New York.

a. Plaintiff Finger Lakes Health Insurance Company, Inc. ("Finger Lakes Health") is a wholly-owned subsidiary of Finger Lakes doing business as Finger Lakes Blue Cross. Finger Lakes Health is a not-for-profit New York corporation incorporated with its principal place of business in Rochester, New York.

b. Plaintiff Finger Lakes Medical Insurance Company, Inc. ("Finger Lakes Medical") is a wholly-owned subsidiary of Finger Lakes doing business as Finger Lakes Blue Shield. Finger Lakes Medical is a not-for-profit New York corporation with its principal place of business located in Rochester, New York.

c. Excellus Health Plan, Inc. ("Excellus Health") is a wholly-owned subsidiary of Excellus doing business as Blue Cross and Blue Shield of Central New York. Excellus Health is a not-for-profit New York corporation with its principal place of business in Syracuse, New York.

d. Utica-Watertown Health Insurance Company, Inc. ("Utica") is a wholly-owned subsidiary of Upstate doing business as Blue Cross Blue Shield of Utica-Watertown. Utica is a not-for-profit New York corporation with its principal place of business located in Utica, New York.

UNYS and its subsidiaries are collectively referred to herein as "UNYS." As a provider of health plan benefits and other services to individuals and employee and other groups and as a direct payer of health care costs incurred by its members, UNYS has paid and will continue to pay millions of dollars in health care costs related to tobacco-related diseases.

Defendants

43. Defendant Philip Morris, Incorporated ("Philip Morris") is a Virginia corporation whose principal place of business is 120 Park Avenue, New York, New York. Philip Morris manufactures, advertises and sells cigarettes and other nicotine tobacco products throughout the United States.

44. Defendant R.J. Reynolds Tobacco Company ("R.J. Reynolds") is a New Jersey corporation whose principal place of business is Fourth & Main Street, Winston-Salem, North Carolina. R.J. Reynolds manufactures, advertises and sells cigarettes and other nicotine tobacco products throughout the United States.

45. Defendant Brown & Williamson Tobacco Corporation ("Brown & Williamson") is a Delaware corporation whose principal place of business is 1500 Brown & Williamson Tower, Louisville, Kentucky. Brown & Williamson manufactures, advertises and sells cigarettes and other nicotine tobacco products throughout the United States. Brown & Williamson has also been named defendant as successor in interest to The American Tobacco Company ("American Tobacco"), which was merged with and into Brown & Williamson in 1994. As such, Brown & Williamson is legally liable for the conduct of American Tobacco.

46. Defendant B.A.T. Industries P.L.C. ("B.A.T.") is a British corporation whose principal place of business is Windsor House, 50 Victoria Street, London SW1H ONL. Through a succession of intermediary corporations and holding companies, B.A.T. is the sole shareholder of Brown & Williamson. Through Brown & Williamson, B.A.T. has placed cigarettes into the stream of commerce with the expectation that substantial sales of cigarettes would be made in the United States. B.A.T. has also conducted, or through its agents, subsidiaries, affiliated companies and/or co-conspirators conducted significant research for Brown & Williamson on the topics of smoking, disease and addiction. Brown & Williamson and B.A.T. conspired to remove from the United States and to send to B.A.T. in England quantities of research conducted in the United States on the topics of smoking, disease and addiction in order to remove sensitive and inculpatory documents from U.S. jurisdiction. B.A.T. is a participant in the conspiracy described herein and has caused harm and affected commerce in the United States.

47. Defendant British American Tobacco Company, Ltd. ("BATCO") is a British corporation whose registered office is at Milbank, Knowles, Green, Staines, Middlesex, England TW18 1DY. Defendant BATCO is or was a related corporation of defendant Brown & Williamson. Both are owned by B.A.T. BATCO advertises, promotes and sells its own nicotine tobacco products throughout the United States. At all times pertinent to this complaint, defendant BATCO, individually or through its affiliate, agent and alter ego, subsidiary and/or division defendant Brown and Williamson, designed, tested, manufactured, marketed and sold cigarettes for use in the United States. BATCO has itself or has through its affiliated companies, agents, or subsidiaries also conducted significant research for Brown & Williamson on the topics of smoking, disease and addiction. Upon information and belief, Brown & Williamson also sent to England research conducted in the United States on the topics of smoking, disease and addiction in order to remove the sensitive and inculpatory documents from U.S. jurisdiction. BATCO is a participant in the conspiracy described herein and has caused harm and affected commerce in the United States.

48. Defendant Lorillard Tobacco Company ("Lorillard") is a Delaware corporation whose principal place of business is 1 Park Avenue, New York, New York. Lorillard manufactures, advertises and sells cigarettes and other nicotine tobacco products throughout the United States.

49. Defendant Liggett & Myers Inc. ("Liggett") is a Delaware corporation whose principal place of business is Main and Fuller, 710 Main Street, Durham, North Carolina. Liggett manufactures, advertises and sells cigarettes and other nicotine tobacco products throughout the United States.

50. Defendant United States Tobacco Company ("U.S. Tobacco") is a Delaware corporation whose principal place of business is 100 West Putnam Avenue, Greenwich, Connecticut. U.S. Tobacco manufactures, advertises and sells cigarettes. U.S. Tobacco also manufactures, advertises and sells approximately 88 percent of the smokeless tobacco (snuff and chewing tobacco) sold in the United States under various brand names.

51. Defendant The Tobacco Institute, Inc. is a New York non-profit corporation with its principal place of business at 1875 I Street N.W., Suite 800, Washington D.C. At all relevant times, the Tobacco Institute operated as a propaganda and lobbying arm of the Tobacco Companies and was an agent and employee of the Tobacco Companies. The Tobacco Institute has been involved in the conspiracy described in this complaint, and the actions of the Tobacco Institute have affected commerce and caused harm throughout the United States.

52. Defendant The Council for Tobacco Research - U.S.A., Inc. ("CTR") is a New York non-profit corporation with is principal place of business at 900 Third Avenue, New York, New York. CTR is successor in interest to the Tobacco Institute Research Committee ("TIRC"). At all relevant times, both CTR and TIRC operated as propaganda and lobbying arms of the Tobacco Companies and as an agents and employees of the Tobacco Companies. CTR and TIRC have been involved continuously in the conspiracy described herein, and their actions have affected commerce and caused harm throughout the United States.

53. Defendant The Smokeless Tobacco Research Council, Inc. ("STRC") is a New York non-profit corporation whose principal place of business is 1627 K Street N.W., Washington, D.C. Founded in 1969, STRC for most of its history was dominated by U.S. Tobacco, the largest manufacturer of smokeless tobacco products in the United States. In September 1996, U.S. Tobacco resigned from STRC, leaving as its members Brown & Williamson and several small producers of smokeless tobacco, including The Pinkerton Company, National Tobacco Company, Swisher International and Conwood Company LP. At all relevant times, STRC operated as a propaganda and lobbying arm of the Tobacco Companies and as an agent and employee of the Tobacco Companies. STRC has been financially supported by several of the largest tobacco companies, including at least Brown & Williamson, Lorillard and R.J. Reynolds, and has been involved continuously in the conspiracy described herein. By its conduct, STRC has affected commerce and caused harm throughout the United States.

54. Defendant Hill and Knowlton, Inc. is an international public relations firm whose principal place of business is 420 Lexington Avenue, New York, New York. Hill and Knowlton has been continuously and centrally involved in the wrongful conduct and conspiracy since its creation, and Hill and Knowlton's actions have affected commerce and caused harm throughout the United States.

55. Various other persons, firms, and corporations, who have been named as Unknown Corporations A-Z, which are parent corporations, alter egos, holding corporations, aliases, subsidiaries, affiliates, agents or otherwise related to the named defendants, participated in the wrongful acts alleged in this Complaint.

IV. THE DEFENDANTS' CONSPIRACY

The Health Consequences of Tobacco

56. The human tragedy of smoking-related disease is enormous. Cigarette smoking is the leading cause of premature death in the United States. According to the Federal Centers for Disease Control and Prevention, each year smoking-related illnesses kill more than 400,000 Americans, exceeding the combined deaths caused by automobile accidents, AIDS, alcohol use, illegal drug use, homicide, suicide and fires. Smoking-related illnesses account for one of every five deaths each year in the United States.

57. At least 43 chemicals in the smoke inhaled by persons using the Tobacco Companies' products have been determined to be carcinogenic. Cigarette smoking causes as much as 85% of all lung cancer. Tobacco products are also linked to cancers of the mouth, larynx, esophagus, stomach, pancreas, uterus, cervix, kidney and colon, among others. All told, tobacco use is responsible for at least 30% of all deaths from cancer. Smoking is the cause of more than 80% of deaths from pulmonary diseases such as emphysema and bronchitis. Smoking is also responsible for thousands of deaths from cardiovascular diseases, including stroke, heart attack, peripheral vascular disease and aortic aneurysm. Tobacco use is also linked to a large number of other serious illnesses.

58. The health consequences of smoking among women are of special concern because of the deleterious effect on reproduction. Smoking reduces fertility, increases the rate of miscarriages and stillbirths, retards uterine fetal growth and results in lower birth weight in infants.

59. As a direct result of the unrestrained and unlawful conduct of the Tobacco Companies and other Defendants, tobacco use has become the most pervasive public health issue of our time and the single most preventable cause of death in our society.

60. Medical research has now established that smoking cigarettes also creates a behavioral addiction and habit because it contains nicotine. The addiction created by nicotine is not merely a behavioral or psychological addiction, however, but is physiological as well and but involves physical alteration to a smoker's brain structure and functioning. In the absence of nicotine, the addicted smoker suffers symptoms of physical withdrawal, including headaches, constipation, insomnia, depression, inability to concentrate and anxiety. Defendants have known this for decades but have lied about and suppressed these facts as documents they previously successfully conspired to conceal have been revealed.

61. Once a person starts smoking, it is extremely difficult to stop, and most who try do not succeed. Many smokers are unable to quit until they have heart or lung surgery. Even after a heart attack or lung cancer surgery, approximately one-half of all survivors return to smoking. The changes to the central nervous system involved in nicotine addiction are similar to those involved in cocaine addiction. According to the Surgeon General of the United States:

The pharmacological and behavioral processes that determine tobacco addiction are similar to those that determine addiction to drugs such as heroin and cocaine.

62. In 1996, the Food and Drug Administration ("FDA") promulgated regulations establishing the FDA's assertion of jurisdiction over tobacco products as medical drugs and devices under the Federal Food, Drug and Cosmetic Act. After the Tobacco Companies unsuccessfully challenged the FDA's jurisdictional authority in federal court, these regulations became effective in August 1997. The FDA concluded that cigarettes and smokeless tobacco are combination products consisting of nicotine -- a drug that causes addiction and other significant pharmacological effects on the human body -- and medical device components that deliver nicotine to the body.

63. Smokeless tobacco, which contains nicotine, can also cause cancer. The risk of oral cancer in particular increases with increased exposure to smokeless tobacco products, especially in those areas of the mouth where smokeless tobacco products are used. The risk of cheek and gum cancers is nearly fifty times greater in long-term snuff users than in non-users. Snuff and chewing tobacco contain potent carcinogens, including nitrosamines, polynuclear aromatic hydrocarbons and radioactive polonium.

64. Smokeless tobacco use can cause oral leukoplakia, a precancerous lesion of the soft tissue around the mouth that consists of a white patch or plaque that cannot be scraped off. One study of 117 high school students who were smokeless tobacco users revealed that nearly 50% of those students had oral tissue alterations. There is a 5% chance that oral leukoplakias will transform into malignancies in 5 years.

65. Smokeless tobacco can cause oral cancer and oral leukoplakia and may be associated with an increased risk of cancer of the esophagus. Smokeless tobacco use has been implicated in cancers of the gum, mouth, pharynx and larynx. Snuff use also causes gum recession and is associated with discoloration of teeth and fillings, dental cavities and abrasion of the teeth.

The Concentration of the Industry

66. Cigarette manufacturing has been one of the most concentrated industries in the United States throughout this century. Until 1994, Philip Morris, R.J. Reynolds, Brown & Williamson, American Tobacco, Lorillard and Liggett together comprised the Big Six cigarette manufacturers, which controlled virtually 100% of the market in the United States. In 1994, American Tobacco was acquired by B.A.T. and merged with and into Brown & Williamson. Philip Morris and R.J. Reynolds are the industry leaders with national market shares of approximately 48% and 25%, respectively, as of March 31, 1998. The approximate market shares of the other cigarette manufacturers are: Brown & Williamson, 17%; Lorillard, 8%; and Liggett, 2%. U.S. Tobacco manufactures 88% of the smokeless tobacco products sold in the United States.

67. The tobacco industry is a tight-knit oligopoly, with a history of collusion. There are substantial barriers to entry into the tobacco market. These barriers include substantial capital costs for entry, the existence of patents, reputational barriers, firmly entrenched incumbent firms with stable market shares, substantial economies of scale and production and regulatory barriers. These barriers to entry are evidenced by the absence of entry in the tobacco market, and a history of high profit margins among participants in the industry.

68. In part because of its concentration, and in part because its customers are physically addicted to the product, making demand relatively inelastic, the tobacco industry is enormously profitable, with profit margins by each of the Tobacco Companies estimated at over 30 percent. The Tobacco Companies earn billions of dollars in profits each year. For example, in 1996, Philip Morris's parent corporation reported record earnings of $4.2 billion (on worldwide sales of $36.5 billion). Philip Morris's record earnings in 1996 were driven, in part, by increased sales of nicotine products in the United States with shipments of 230.8 billion cigarettes.

69. In addition, industry concentration and high barriers to entry have allowed the Tobacco Companies and their trade associations to engage in a decades-long conspiracy not to compete in research, development, production and marketing of less harmful cigarettes.

Overview of Defendants' Wrongful Conduct And Conspiracy

70. For nearly a half-century, the Tobacco Companies and the other Defendants have pursued an unlawful course of conduct and conspiracy of deceit and misrepresentation against the public and the health care industry in order to promote and maintain sales of tobacco products and the profits derived therefrom, to shield themselves from having to pay the health care and other costs attributable to tobacco-related diseases, and to shift those costs to others, including the BC/BS Plans. The conspiracy and other wrongful conduct is ongoing and continues to this day. The Tobacco Companies continue to misrepresent and conceal facts and information from the public, including the BC/BS Plans.

71. Defendants' conspiracy consists fundamentally of four strategies: first, they agreed to represent falsely to the public that they were creating a new, unbiased and therefore trustworthy, source to address issues concerning smoking and health; second, they counted on the public's acceptance of their representations of trustworthiness to allow them to pursue a massive and sophisticated effort to misrepresent, suppress, distort and confuse the facts about the health dangers of tobacco products, including nicotine addiction, while at the same time manipulating the levels of nicotine in their products to foster continued addiction; third, they agreed among themselves to refrain from competing with each other to produce and market less harmful cigarettes and other nicotine tobacco products; and fourth, they agreed not to compete among themselves with respect to any claims relating to the relative health superiority of specific tobacco products.

72. The Tobacco Companies set their plan in motion by creating a joint industry research organization in 1954, originally called the Tobacco Industry Research Committee and later named the Council for Tobacco Research. Since that time, the Tobacco Companies have used the credibility derived from these and other ostensibly disinterested industry-funded research organizations to suppress and/or misrepresent material facts about the effects of tobacco use to the public. Although they had knowledge of the serious health dangers inherent in the use of their products, including the addictiveness of nicotine, Defendants have complemented the above scheme by constructing and disseminating the fallacious argument that (i) there is insufficient "objective" research to determine whether the use of tobacco products causes disease and death and (ii) tobacco products are not addictive.

73. The Defendants' interconnected and conspiratorial strategies -- suppressing material information, misrepresenting the facts about the harmful effects of smoking, using the credibility gained by such misrepresentations to deceive Congress, regulators, the public, the health care industry, and health benefit payers including the BC/BS Plans, about smoking and health and restraining trade and competition by agreeing not to compete in the research, development and marketing of a less harmful cigarette -- have been repeated continuously for more than four decades. Defendants have been and are engaged in a continuous conspiracy to deceive Congress, regulators, the public, the health care industry, and health benefit payers including the BC/BS Plans, regarding facts material to reaching an informed understanding of the health consequences of smoking and to deciding whether to purchase and use tobacco products.

74. Moreover, as confidential industry research confirmed the dangers of using tobacco products, including the addictiveness of nicotine, Defendants' deception rose to a new level. Although promising the public that they would make full disclosure of the results of their research, Defendants concealed their own negative health and addiction research results from Congress, regulators, the public, public health officials, the health care industry, and health and benefit payers including the BC/BS Plans. These research results have not been voluntarily released to this day. Defendants also have not disclosed and in fact have denied that the Tobacco Companies manipulate and control the content and delivery of nicotine in their products to create and sustain consumers' addiction to tobacco products. Defendants have further conspired to suppress the development, testing and marketing of less harmful cigarettes, while fraudulently maintaining that their products are safe or that there are no less harmful alternatives to their products. Defendants also have conspired to discredit or cast doubt upon the results of legitimate and accurate scientific research and findings confirming the adverse health effects of nicotine and tobacco use.

75. The success of the Tobacco Companies' campaign of deceit, concealment and misinformation has depended, in large part, on Defendants' acting in concert. Without the agreement of each of the Tobacco Companies to suppress the truth about the health consequences and addictive nature of using tobacco products, the deception that the joint industry research efforts were objective would have been revealed and the claim that "not enough facts are known" to indict the use of the products would have been debunked. Defendants agreed to come and stay together in order to accomplish what would not otherwise have occurred -- the unified and consistent dissemination of false information and the distortion of public information about the use of tobacco products and their impact on health and addiction. Similarly, the strategy of restraining competition by refraining from producing and marketing less harmful products arose from Defendants' conspiratorial and concerted action.

76. Defendants were aware that unless they took the actions they agreed to take and subsequently took, the volume of tobacco product sales would have substantially decreased, and the size of their profits would have diminished substantially. Defendants were also aware that if they were required to pay the health care costs, caused by, and resulting from, the use of their products including the costs of diagnosis, treatment, prescription drug benefits and surgical procedures -- such as those costs incurred by the BC/BS Plans -- the Tobacco Companies' profits would have decreased substantially.

77. The BC/BS Plans were directly and indirectly injured by Defendants' wrongful and unlawful conduct in several significant ways, as alleged in detail below. The Tobacco Companies have known since at least the 1950s that their products are inextricably linked to the health care market. Indeed, 1968 internal draft Philip Morris memorandum stated: "Most Philip Morris products, both tobacco and non-tobacco, are related to the health field." Defendants have known that health benefit and insurance payers, including the BC/BS Plans, would be directly affected in their business and property by the Tobacco Companies' actions. Defendants have known that health care payers and insurers, including the BC/BS Plans, would and did rely to their detriment on Defendants' false and misleading statements.

78. But for the Tobacco Companies' and the other Defendants' campaign of misinformation regarding the dangerous and deadly effects of nicotine and tobacco consumption, third party payers, including the BC/BS Plans, would have had the opportunity to pay for counseling by health care providers with respect to smoking and health. By preventing or causing the delay of such counseling efforts and programs, the Tobacco Companies and other Defendants have substantially increased the number of BC/BS Plan members requiring medical treatment for tobacco-related diseases and addiction. Through their illegal course of conduct, the Tobacco Companies have substantially increased the costs incurred by the BC/BS Plans.

79. In addition, had the Tobacco Companies and other Defendants disclosed their confidential research demonstrating the deadly and dangerous effects of smoking and chewing tobacco and otherwise refrained from their conspiracy of deceit, governmental entities which bear responsibility for the public's health would have initiated or initiated sooner programs that would have reduced the incidence of smoking and chewing tobacco among the general population and among the BC/BS Plans' members. By staving off government regulation, Defendants caused the perpetuation of cigarette smoking, thereby increasing the incidence of smoking-related diseases among the public at-large and Plaintiffs' members. Defendants' unlawful conduct directly injured the BC/BS Plans by increasing the number of members requiring medical treatment for tobacco and nicotine-related illnesses and addiction.

The Tobacco Companies' Ongoing Public Deception About Smoking and Health

80. Inhalable tobacco became widely popular in the 19th century when W. Duke and Sons ("Duke") introduced a mechanized cigarette-rolling machine. Through this device, cigarettes were mass-produced, distributed and sold nationwide.

81. In 1881, Duke's factory produced 9.8 million cigarettes, 1.5 percent of the total market share. Only five years later, Duke manufactured 744 million cigarettes, more than the national total in 1883. By 1890, Duke's competitors, who by that time had become mechanized, joined forces with Duke to establish The American Tobacco Company. By the turn of the century, nine out of every ten cigarettes were manufactured or sold by W. Duke and Sons.

82. Shortly after the formation of The American Tobacco Company, the State of North Carolina initiated an antitrust suit against the company. In May 1911, the Supreme Court dissolved The American Tobacco Company, which was succeeded by four large firms: Liggett, R.J. Reynolds, Lorillard and American, plus many smaller firms.

83. Cigarette smoking increased dramatically in the first half of the 20th century, followed by an increase in incidences of lung and other cancers and diseases. As a result, issues concerning the health effects associated with smoking cigarettes began to arise. In a 1946 letter from a Lorillard chemist to its manufacturing committee, it was reported that: "Certain scientists and medical authorities have claimed for many years that the use of tobacco contributes to cancer development in susceptible people. Just enough evidence has been presented to justify the possibility of such a presumption." Similarly, in 1945, Dr. Alton Ochsner, a New Orleans surgeon and regional medical director of the American Cancer Society, told an audience at Duke University that "there is a distinct parallelism between the incidence of cancer of the lung and the sale of cigarettes . . . [that] the increase is due to the increased incidence of smoking and that smoking is a factor because of the chronic irritation it produces."

84. In response to such medical concerns about smoking, the Tobacco Companies through industry spokesmen dismissed such reports as "the health scare." The Tobacco Companies also engaged in advertising campaigns to induce the public to believe that cigarette smoking was actually beneficial to one's health. The Tobacco Companies made express claims and warranties as to the healthfulness of their products with reckless disregard to the falsity of their claims and the consequential adverse impact on consumers. Examples of their health warranties include the following: Old Gold, "Not a cough in a Carload"; Camel, "Not a single case of throat irritation due to smoking Camel"; Philip Morris, "The Throat-tested cigarette." Brown and Williamson also claimed that Kool cigarettes would keep the head clear and/or provide protection against colds.

85. These health-claim advertising campaigns were disseminated nationally in popular magazines, as well as on radio and television, and were calculated to persuade non-smokers to begin smoking and to persuade smokers to continue their use of products already causing them harm and injury. These campaigns were materially false and misleading.

86. There are numerous other examples of the Tobacco Companies' materially deceptive campaigns. In 1952, Liggett conducted a test for advertising purposes to demonstrate the absence of harmful effects of smoking Chesterfield cigarettes on the nose, throat and affected organs. The tests were designed to have no real scientific value. Nonetheless, the test's rigged conclusion that smoking Chesterfield cigarettes had no harmful effect on the stated organs was widely publicized, and the purported results were used by Liggett to assure the general public that smoking Chesterfield cigarettes was harmless.

87. During the 1950s, Liggett sponsored the nationally popular Arthur Godfrey radio and television show wherein health claims were made based on alleged scientific studies assuring that "smoking Chesterfields would have no adverse effects on the throat, sinuses or affected organs."

88. Earlier consumer-oriented ads from the 1930s and 1940s often spouted wide-ranging medical claims that depicted physicians holding cigarettes in the company of endorsers including Santa Claus ("Luckies are easy on my throat"), movie stars, sports heroes and circus stars. Similar ads even appeared in medical journals, targeted directly to physicians. One, for example, touted the Camel cigarette booth at the American Medical Association's 1942 Annual Meeting.

89. Chesterfield cigarette ads begun running in the New York State Journal of Medicine as early as 1933. The ads carried claims such as "Just as pure as the water you drink… and practically untouched by human hands."

90. The Tobacco Companies sponsored cigarette ads in the New England Journal of Medicine, the Journal of the American Medical Association ("JAMA") and The Lancet from the 1930s through the 1950s.

91. For years, Philip Morris made various claims that its cigarettes were less irritating than other brands. An advertisement in a 1943 issue of the National Medical Journal urged: "Don't smoke is hard advice for patients to swallow. May we suggest instead 'Smoke Philip Morris?' Tests showed three out of every four cases of smokers' cough cleared on changing to Philip Morris. Why not observe the results for yourself?" Another Philip Morris ad published in JAMA in 1949 averred: "Why many leading nose and throat specialists suggest, 'Change to Philip Morris! . . . '"

92. Other companies employed different marketing techniques aimed at physicians. For example, Camel cigarettes paid tribute to medical pioneers and concluded: "Experience is the best teacher…[e]xperience is the best teacher in cigarettes, too." Old Gold reacted to early negative medical studies with the slogan: "If pleasure's your aim, not medical claim. . . ."

The Tobacco Companies' Conspiracy Began in Earnest In Order To Counter A Public Health "Scare" Over Tobacco

93. The conspiracy and combination among the Tobacco Companies was formed no later than the early 1950s in response to the release of information about scientific research linking health hazards to tobacco consumption.

94. The Tobacco Companies knew well before the 1950s that tobacco use was deadly. However, in 1952, Sir Richard Doll, an eminent British epidemiologist, issued a report stating that lung cancer was more common among people who smoked and that the risk of lung cancer was directly proportional to the number of cigarettes smoked. Brown & Williamson and the other Tobacco Companies were aware of the implications of this research. Indeed, a Brown & Williamson review of published statistical research, including the 1952 report by Doll, noted that the studies offered "frightening testimony from epidemiological studies."

95. In December 1953, Dr. Ernest Wynder of the Sloan-Kettering Institute published a report confirming that cigarettes cause cancer based on experiments in which the skin of mice had been painted with residues of cigarette smoke. Dr. Wynder's report represented an experimental confirmation of earlier epidemiological studies linking tobacco with cancer. Following publication of the Wynder study, sales of both nicotine tobacco products and tobacco stock prices fell. These events provoked an immediate response by the Tobacco Companies.

96. On December 14, 1953, Brown & Williamson President Timothy V. Hartnett circulated a memorandum to the other Tobacco Companies proposing that in response to the "health issue," the Tobacco Companies should (a) assist "scientific research," with a group decision in advance about "how to handle significantly negative research results if, as, and when they develop" and (b) carry out the best public relations campaign ever. Hartnett noted that no public relations firm "ha[d] ever been handed so real and yet so delicate a multimillion dollar problem."

97. The next day, the presidents of Philip Morris, R.J. Reynolds, American Tobacco, Brown & Williamson, Lorillard and U.S. Tobacco met at The Plaza Hotel in New York City. This meeting was unprecedented because the participants had been previously subject to the terms of an earlier dissolution decree and found guilty of price-fixing.

98. At the meeting, six of the Tobacco Companies conspired and agreed on the strategy to deal with the "health issue" -- a strategy they have followed to this day. The strategy involved carrying out an illegal, fraudulent conspiracy involving violation of antitrust laws and other wrongdoing, as described in detail herein. Among other things, these Defendants agreed to (a) stop competing with each other in making or developing less harmful cigarettes; (b) continue knowingly and willfully to engage in misrepresentations and deceptive acts by, among other things, denying knowledge that cigarettes caused disease and death and agreeing not to disseminate harmful information showing the destructive effects of nicotine and tobacco consumption; (c) shut down research efforts and suppress medical information that appeared to be adverse to the Tobacco Companies' position that tobacco was not harmful; (d) not to compete with respect to making any claims relating to the relative health-superiority of specific tobacco products; and (e) to confuse the public about, and otherwise to distort, whatever accurate information about the harmful effects of their products became known despite their conspiracy of deceit. Throughout the course of this conspiracy, the Tobacco Companies fraudulently promised the public and those involved in financing public health care, including the BC/BS Plans, that they would accept paramount responsibility for the health of smokers, would fund independent research in an honest effort to discover the objective truth about cigarettes and health and would disclose all information about smoking and health.

99. Defendant Hill and Knowlton, a public relations company, coordinated and later prepared a memorandum summarizing this meeting. According to the memorandum, each of the company presidents attending the meeting emphasized that he considered the program to be a "long term one," and that the meeting participants were "emphatic in saying that the entire activity is a long-term, continuing program."

100. As stated in the Hill and Knowlton memorandum, the participants at this meeting recognized that "their own advertising and competitive practices have been a principal factor in creating a health problem," and that their agreement to "do something about it," might "very clearly fall within the purview of the antitrust act." The memorandum thus set forth an explicit intent to violate the antitrust laws by suppressing competition based on claims of superior health benefits associated with an individual company's products. As a result and part of this anticompetitive intent and agreement the Tobacco Companies suppressed research, development, and marketing of less harmful products. To enforce this unlawful agreement, the Tobacco Companies further agreed not to compete based on claims of superior health benefits. By doing so, Tobacco Companies ensured the unprofitability of marketing a less harmful cigarette.

101. The participating cigarette executives recognized that the "problem is one of promoting cigarettes and protecting them from these and other attacks that may be expected in the future." The participating cigarette executives also "agreed to go along with a public relations program on the health issue" through an informal enterprise rather than a more formal association. The memorandum stated that "because of the antitrust background, the companies do not favor the incorporation of a formal association. Instead, they prefer strongly the organization of an informal committee which will be specifically charged with the public relations function and readily identified as such."

102. The six Tobacco Companies involved at the time and Hill & Knowlton intended that Hill and Knowlton play a central role in the conspiracy. "The current plans are for Hill and Knowlton to serve as the operating agency of the companies, hiring all the staff and disbursing all funds."

The Tobacco Companies Undertook a Duty To Investigate and Tell the Truth About the Adverse Effects of Smoking, But Repeatedly Lied to the Public and Governmental Agencies, Breaching This Duty

103. On January 4, 1954, Philip Morris, R.J. Reynolds, Brown & Williamson, American Tobacco, Lorillard and U.S. Tobacco, in furtherance of their conspiracy, organized and became members of the "Tobacco Industry Research Committee" ("TIRC"). Liggett became a member in 1964 at the same time the TIRC changed its name to the Council for Tobacco Research ("CTR"), one of the Defendants in this action. Similar "research" groups were formed in other countries. TIRC, CTR, and the other "research" groups were not true research groups; they merely used propaganda and public relations techniques to advance the Tobacco Companies' false claim that there was no known connection linking the use of tobacco products and nicotine consumption with disease.

104. On that same day, those Tobacco Companies (American Tobacco, Brown & Williamson, Lorillard, Philip Morris, R.J. Reynolds and U.S. Tobacco) announced the formation of TIRC in a statement deceptively entitled "A Frank Statement to Cigarette Smokers." These defendants published the statement in newspapers in virtually every city with a population of 50,000 or more, reaching more than 43 million Americans out of a population at that time of approximately 150 million. The advertisement explicitly and specifically stated in part:

a. "Recent reports on experiments with mice have given wide publicity to a theory that cigarette smoking is in some way linked with lung cancer in human beings."

b. "Although conducted by doctors of professional standing, these experiments are not regarded as conclusive in the field of cancer research."

c. "That there is no proof that cigarette smoking is one of the causes" of lung cancer.

d. "We accept an interest in people's health as a basic responsibility, paramount to every other consideration in our business."

e. "We believe the products we make are not injurious to health."

f. "We always have and always will cooperate closely with those whose task it is to safeguard the public health."

g. "We are pledging aid and assistance to the research effort into all phases of tobacco use and health."

h. "For this purpose we are establishing a joint Industry group consisting initially of the undersigned. This group will be known as TOBACCO INDUSTRY RESEARCH COMMITTEE."

i. "In charge of the research activities of the Committee will be a scientist of unimpeachable integrity and national repute. In addition, there will be an Advisory Board of scientists disinterested in the cigarette industry."

j. "This statement is being issued because we believe the people are entitled to know where we stand on this matter and what we intend to do about it."

105. Shortly after creating the TIRC, the member cigarette manufacturers made an unambiguous pledge to the public. Liggett joined in this pledge in 1964 when it joined the TIRC. The Tobacco Companies represented that they would, through the TIRC, conduct and report objective and unbiased research regarding smoking and health. When they made this representation, Defendants knew or should have known that consumers and others throughout the country would consider the representation material to their decisions to purchase and smoke cigarettes. Defendants knew or should have known that health care payers and similar organizations, including the BC/BS Plans, would rely upon their statements. Similarly, Defendants also knew or should have known that responsible governmental agencies and authorities would fail to take or delay taking public health measures they otherwise would have taken had Defendants fulfilled their pledge. At that time, and continuing to the present, Defendants knew that their failure to fulfill the duty they undertook, and their other conduct as alleged herein, would result in increased health care costs to health care payers, including the BC/BS Plans. Indeed, one of the purposes of Defendants' conduct was to distort and manipulate the health care market in order to deflect responsibility and financial obligations from themselves to others, including the BC/BS Plans.

106. Defendants' undertakings in the "Frank Statement to Cigarette Smokers" were recognized as creating responsibility at the time that Statement was made. A Hill and Knowlton report to the TIRC, dated April 28, 1955, admitted the special responsibility of TIRC and the Tobacco Companies:

The Tobacco Industry Research Committee first appeared before the public with an assurance that the Industry itself would assume leadership in research into all aspects of tobacco use and health. . . .

This brings with it a greater responsibility to the press and the public. The TIRC will have to live up to the expectations it has created on two fronts:

First, by pushing ahead sound, but steadily to get at the facts. . . .

Second, to report to the public where it stands in the search for the desired information about cancer. . . .

107. Throughout the years, Defendants have many times repeated the promises and statements made in the "Frank Statement to Cigarette Smokers."

108. For example, the Tobacco Institute later published "A Statement About Tobacco and Health," which stated in part:

a. "We recognize that we have a special responsibility to the public -- to help scientists determine the facts about tobacco and health, and about certain diseases that have been associated with tobacco use."

b. "We accepted this responsibility in 1954 by establishing the Tobacco Industry Research Committee, which provides research grants to independent scientists. We pledge continued support of this program of research until all the facts are known."

c. "Scientific advisors inform us that until much more is known about such diseases as lung cancer, medical science probably will not be able to determine whether tobacco or any other single factor plays a causative role -- or whether such a role might be direct or indirect, incidental or important."

d. "We shall continue all possible efforts to bring the facts to light."

109. Similarly, on June 25, 1964, Bowman Gray, R.J. Reynolds's Chairman of the Board and a spokesperson for the Tobacco Industry, testified before a United States House of Representatives Committee that TIRC was free and independent and that it had found nothing injurious in cigarettes, but that, if it did, TIRC would bring it out.

110. In 1970, at the direction of the other Defendants, TIRC placed advertisements throughout the United States in which it again falsely claimed that there was no known link between cigarettes and disease, despite decades of "totally independent research." The Tobacco Institute further stated: "The tobacco industry recognizes and accepts a responsibility to promote the progress of independent scientific research in the field of tobacco and health."

111. On January 3, 1971 Joseph F. Cullman, III, Chairman of Philip Morris, stated on a nationally televised broadcast that:

We are also very concerned about the charges leveled against our product, and we are very anxious to do whatever we can to clear the air in this matter. We happen to be optimistic about the future, and we happen to feel that this is a great industry, and that this industry can face the future with confidence because when, as, and if any ingredient in cigarette smoke is identified as being injurious to human health, we are confident that we can eliminate that ingredient.

112. In 1982, Edward A. Horrigan, Jr., then Chairman of the Executive Committee of the Tobacco Institute, publicly stated:

After three decades of investigation and millions of dollars invested by the government, the Tobacco Industry and private organizations, the smoking and health controversy remains unresolved. The net result of all of this effort has been that no causal link between smoking and disease has been established. That is not merely the opinion of Tobacco Industry executives. That is scientific fact readily available to anyone willing to make an objective, unemotional study of the existing evidence.

113. A R.J. Reynolds executive wrote the following to a grade school principal in 1990, in response to a letter from fifth-graders:

Despite all the research going on, the simple and unfortunate fact is that scientists do not know the cause or causes of the chronic diseases reported to be associated with smoking. . . . We would appreciate your passing this information along to your students.

114. To this day, Defendants continue this deception and unless enjoined this deception will continue. In March 1998, Geoffrey Bible, the Chairman and CEO of Philip Morris, stated under oath to a committee of the U.S. Senate that he does not believe that people die from smoking. Mr. Bible subsequently stated in open court that his company has a duty to inform the public of the risks of smoking, to make as safe a product as it possibly can, to tell consumers what it knows about the risks of its products and that his company should be held accountable if it violated any one of those duties. Philip Morris has in fact violated all of these duties.

115. Mr. Bible's statements were false and designed to deceive. Mr. Bible knew at the time he made those statements that the Tobacco Companies (including Philip Morris) have in fact known and admitted in their internal records that smoking causes cancer and other diseases but Philip Morris and the other Tobacco Companies continue to claim falsely that they do not know whether smoking does so.

Defendants Knew For At Least Four Decades That Cigarettes And Other Tobacco Products Were Deadly and Addictive and that Tobacco Products and Defendants' Wrongful Conduct Would Increase Plaintiffs' Health Care Costs

116. Despite Defendants' continued statements that it has not been proven that cigarettes are deadly or addictive, secret internal company documents only released to the public in the past year or so show that Defendants have known all along that tobacco causes disease and death and that it is addictive. Moreover, Defendants used their so-called research councils to propagate their misrepresentations. Recently released, secret internal documents show that the Tobacco Companies were aware from the outset that they could not reveal their knowledge that their products were unsafe, nor could they develop less harmful alternatives without, in effect, indicting their own industry.

117. These documents indicate that, in 1958, three representatives of BATCO met during a month-long trip to the United States with over twenty American scientists and researchers, including at least nine representatives of the U.S. tobacco industry and the Scientific Advisory Board of TIRC. The BATCO representatives stated that all of the tobacco company researchers with whom they met (and all but one of the outside people) "believed that smoking causes lung cancer."

118. They also found "general acceptance of the view that the most likely means of causation is that tobacco smoke contains carcinogenic substances present in sufficient quantity to promote lung cancer when acting for a long time in a sensitive individual."

119. Defendants have known for almost four decades, if not longer, that people continue to smoke because they are addicted. Recently disclosed documents concerning BATCO's "Project Hippo" indicate that, at least as early as 1961, the Tobacco Companies knew of the physiological and pharmacological effects of nicotine. Project Hippo reports were circulated to TIRC, BATCO, Brown & Williamson and R.J. Reynolds. In 1962, Brown & Williamson's parent company conducted a meeting of its worldwide subsidiaries in Southampton, England. At this meeting, one researcher stated that "smoking is a habit of addiction" and "(n)icotine is not only a very fine drug, but the technique of administration by smoking has considerable psychological advantages." Several years later, in 1967, the researcher admitted that the company is in the "nicotine rather than the tobacco industry."

120. These recently released secret documents indicate that Addison Yeaman, General Counsel at Brown & Williamson, wrote in 1963, that the U.S. Surgeon General had concluded that cigarettes "cause, or predispose, lung cancer" and that "[t]hey contribute to certain cardiovascular disorders" and "may well be truly causative in emphysema, etc." Yeaman concluded that "[w]e are, then, in the business of selling nicotine, an addictive drug."

121. A secret report distributed to Philip Morris executives in 1971 noted that only 28 percent of those who tried to quit were still nonsmokers eight months later. The report also described the effects of quitting:

Even after eight months quitters were apt to report having neurotic symptoms, such as feeling depressed, being restless and tense, being ill-tempered, having a loss of energy, being apt to doze off. They were further troubled by constipation and weight gains which averaged about five pounds per quitter. . . . This is not the happy picture painted by the Cancer Society's anti-smoking commercial which shows an exuberant couple leaping into the air and kicking their heels with joy because they've kicked the habit. A more appropriate commercial would show a restless, nervous, constipated husband bickering viciously with his bitchy wife who is nagging him about his slothful behavior and growing waistline.

122. A 1983 R.J. Reynolds report concluded that people smoke to obtain "physiological satisfaction provided by the nicotine." A 1972 Philip Morris report presented at a CTR conference stated that the physiological effect of cigarettes is the "primary incentive; all other incentives are secondary;" "nicotine is the active constituent of cigarette smoke;" and "[w]ithout nicotine . . . there would be no smoking."

123. The report goes on to ask:

Why then is there not a market for nicotine per se, to be eaten, sucked, drunk, injected, inserted or inhaled as a pure aerosol? The answer, and I feel quite strongly about this, is that the cigarette is in fact among the most awe-inspiring examples of the ingenuity of man. Let me explain my conviction.

The cigarette should be conceived not as a product but as a package. The product is nicotine. . . .

Think of the cigarette pack as a storage container for a day's supply of nicotine. . . . Think of the cigarette as a dispenser for a dose unit of nicotine.

124. A 1956 confidential memorandum from a Philip Morris Vice President of Research and Development to top executives at the company regarding the advantages of "ventilated cigarettes" stated: "Decreased carbon monoxide and nicotine are related to decreased harm to the circulatory system as a result of smoking. . . . [D]ecreased irritation is desirable . . . as a partial elimination of a potential cancer hazard."

125. In a March 1957 confidential report, a Brown & Williamson affiliate conducting research for the company reported that "[a]s a result of several statistical surveys, the idea has arisen that there is a causal relation between zephyr and tobacco smoking, particularly cigarette smoking." "Zephyr" was the Brown & Williamson secret code name for cancer.

126. A 1958 confidential memorandum to a Philip Morris Vice President of Research, who later became a member of its Board of Directors, stated that "the evidence . . . is building up that heavy cigarette smoking contributes to lung cancer either alone or in association with physical and physiological factors."

127. A 1961 confidential document presented to the Philip Morris Research and Development Committee by the company's Vice President of Research and Development included a section entitled "Reduction of Carcinogens in Smoke," stating in part as follows:

To achieve this objective will require a major research effort, because. . . .

Carcinogens are found in practically every class of compounds in smoke.

This fact prohibits complete solution of the problem by eliminating one or two classes of compounds. The best we can hope for is to reduce a particularly bad class, i.e., the polynuclear hydrocarbons, or phenols. . . .

Flavor substances and carcinogenic substances come from the same classes, in many instances.

128. A 1961 confidential memorandum from a research consulting firm hired by Liggett stated that cigarette tobacco contains "biologically active materials" that are cancer causing, cancer promoting, poisonous, stimulating, pleasurable and flavorful.

129. A 1963 confidential memorandum from the Liggett consulting research firm stated:

Basically we accept the inference of a causal relationship between the chemical properties of ingested tobacco smoke and the development of carcinoma, which is suggested by the statistical association shown in the studies of Doll and Hill, Horn, and Dorn with some reservations and qualifications and even estimate by how much the incidence of cancer may possibly be reduced if the carcinogenic matter can be diminished, by an appropriate filter, by a given percentage.

130. Liggett withheld this information from the public, the health care industry, and health benefit payers including the BC/BS Plans, in 1963 by presenting to the U.S. Surgeon General a report that focused on alternative causes of disease (such as air pollution, coffee, alcohol, diet, lack of exercise and genetics) and that criticized the alleged statistical association between smoking and diseases as "unreliably conducted" and "inadequately analyzed." The Liggett report concluded that the association between smoking and disease was inconclusive and was in fact due to other factors coincidentally associated with smoking.

131. A 1963 confidential memorandum to Philip Morris's President and CEO from the company's Vice President of Research describes components of cigarette smoke as "known carcinogens" and identifies a link between smoking and bronchitis and emphysema:

Irritation problems are now receiving greater attention because of the general medical belief that irritation leads to chronic bronchitis and emphysema. These are serious diseases involving millions of people. Emphysema is often fatal either directly or through other respiratory complications. A number of experts have predicted that the cigarette Industry ultimately may be in greater trouble in this area than in the lung cancer field.

132. Brown & Williamson and its parent company BATCO researched the health effects of nicotine and were aware early on, as reported at a B.A.T. Group Research Conference in November 1970, that "nicotine may be implicated in the aetiology [cause] of cardiovascular disease."

133. As early as 1962, Defendants recognized that they had to misrepresent what they knew about smoking and health and that they could not afford to develop a less harmful cigarette because to do so would indict their own products, causing the Tobacco Companies to be liable for health care costs associated with tobacco use.

134. That same year, Brown & Williamson's parent company conducted a meeting of its worldwide subsidiaries in Southampton, England. A transcript of the meeting reveals the following regarding the health effects of smoking:

a. One research executive "thought we should adopt the attitude that the causal link between smoking and lung cancer was proven because then at least we could not be any worse off."

b. Another researcher stated:

[N]o industry was going to accept that its product was toxic, or even believe it to be so, and naturally when the health question was first raised, we had to start denying it at the P.R. level. But by continuing that policy, we had got ourselves into a corner and left no room to maneuver. In other words, if we get a break-through and were able to improve our product, we should have to about face, and this was practically impossible at the P.R. level.

c. The chairman of Brown & Williamson's British affiliate stated:

[It] was very difficult when you were asked as chairman of a tobacco company to discuss the health question on television. You had not only your own business to consider but the employees throughout the industry, retailers, consumers, farmers growing the leaf, and so on. And you were in much too responsible a position to get up and say, I accept that the product which we and all our competitors are putting on the market gives you cancer, whatever you might think privately.

d. The chairman also stated that if the company manufactured safer brands, "how to justify continuing the sale of other brands? . . . It would be admitting that some of its products already on the market might be harmful. This would create a very difficult public relations situation."

e. Addison Yeaman, then General Counsel, suggested that Brown & Williamson "accept its responsibility" and disclose the hazards of cigarettes to the Surgeon General. He noted that this would allow the company to research and develop openly a "safer cigarette." Yeaman warned, however, that such disclosure would show jurors that the cigarette companies had known of the hazards of their products and had had the means to make safer cigarettes, but had not. Yeaman's suggestion for full disclosure was rejected.

135. In 1963, Brown & Williamson engaged in an internal debate over whether to disclose what it knew about the adverse effects of smoking to the Surgeon General, who was preparing his first official report on cigarettes. It was decided that the information would not be disclosed. Some of the documents generated by Brown & Williamson as part of this process were shared with its London-based parent company, as well as other cigarette manufacturers and the TIRC/CTR.

136. Philip Morris also concealed from the public its actual views of the research conducted outside the influence of the industry. In a 1971 memorandum, Dr. H. Wakeham, then Vice President of Research and Development, in referring to a recent study that found inhalation of cigarette smoke caused lung cancer in beagles, stated: "1970 might very properly be called the year of the beagle. Early in the year, the American Cancer Society announced that they had finally demonstrated the formation of lung cancer in beagles by smoke inhalation in the now infamous Auerbach and Hammond Study." Although Dr. Wakeham criticized the mice cancer studies, he conceded that "the beagle test was a critical one . . . for the cigarette causation hypothesis."

137. Dr. Wakeham's memorandum demonstrates Philip Morris's approval of the industry's public dismissals of these independent studies: "The strong opposition of the industry to the beagle test is indicative of a new, more aggressive stance on the part of the industry in the smoking and health controversy. We have gone over from what I have called the 'vigorous denial' approach, the take it on the chin and keep quiet attitude, to the strongly voiced opposition and criticism. I personally think this counter-propaganda is a better stance than the former one."

138. Similarly, BATCO's internal view of the validity of mouse skin painting experiments differed markedly from the view expressed in public statements. Minutes from a confidential 1969 research conference stated: "Historically, bioassay experiments were undertaken by the industry with the object of clarifying the role of smoke constituents in pulmonary carcinogensis. The most widely used of these methods [was] mouse-skin painting. . . . In the foreseeable future, say five years, mouse-skin painting would remain as the ultimate court of appeal on carcinogenic effects." Two years later, a Brown & Williamson public relations document stated: "Much of the experimental work involves mouse-painting or animal smoke inhalation experiments. . . . [T]he results obtained on the skin of mice should not be extrapolated to the lung tissue of the mouse, or to any other animal species. Certainly such skin results should not be extrapolated to the human lung."

139. Notwithstanding the depth of knowledge held by the Defendants and their own certainty that smoking caused disease and death, they also understood that its deceptive public pronouncements had succeeded in defrauding the public, despite the warnings that they had been required by law to give. For example, in an internal 1978 memorandum, Brown & Williamson acknowledged that "very few consumers are aware of the effects of nicotine, i.e., its addictive nature and that nicotine is a poison." Defendants' disinformation and propaganda had, as intended by them, greatly reduced the impact of the limited information they were required to disclose or other, similar information provided by others.

140. Because of the Tobacco Companies' secret internal research, Defendants' knowledge regarding the dangerous and deadly effect of smoking and chewing tobacco, is and was superior to that of Plaintiffs and public access to these facts is and was limited because such facts have been exclusively within Defendants' control.

TIRC and CTR Were Tobacco Industry Propaganda Outfits, Fraudulently Presented as "Independent" Scientific Research Councils that in Reality Were Controlled by the Tobacco Companies and Used in Furtherance of the Conspiracy

141. To convince the public that they would use their best efforts to conduct independent and scientific research to determine and disclose the truth about the effects of smoking on individual's health, the Tobacco Companies created the TIRC and CTR and stated that their activities would be objective, independent, and unbiased. But from the very beginning, industry documents show, these groups were neither independent, scientific, nor objective. Instead, they were front groups for the Tobacco Companies whose sole objective was to conduct a campaign of deceit, misrepresentation and misinformation directed at misleading the public about the health risks of smoking.

142. A Hill and Knowlton report to TIRC's chairman, entitled "Confidential Report of Activities Through 1954," stated:

a. TIRC was not independent and was not run by scientists, but was run by Hill and Knowlton: "Since the Committee had no headquarters and no staff, Hill and Knowlton, Inc. was asked to provide a working staff and temporary office space. As a first organizational step, public relations counsel assigned one of its experienced executives, W.T. Hoyt, to serve as account executive and handle as one of his functions the duties of executive secretary for the Tobacco Industry Research Council."

b. Hill and Knowlton helped select the Scientific Advisory Board, "proposed" the Scientific Director, and "handled liaison, agendas, organizational plans, business affairs, reports, and materials for meetings of the TIRC [and] the Scientific Advisory Board, . . . in addition to developing operating procedures for the research program."

c. Hill and Knowlton used TIRC to mislead the public, rather than to discover and bring the truth to light. In essence, TIRC publicized any favorable studies and buried any unfavorable ones.

d. TIRC transformed an obscure scientific report favorable to the Tobacco Companies into national headline news and used other efforts to influence and bias the media's treatment of the issues about smoking and health. On information and belief, TIRC ghost-scripted ostensibly objective news stories.

e. In many instances, TIRC worked behind the scenes to influence the content of individual articles. In one case, TIRC's intervention resulted in extensive revisions to a story in Cosmopolitan that had already been set in type.

f. Freelance authors were hired to write favorable articles for TIRC: "Especially-written articles are being developed that can be used or adopted for use in various media receptive to or seeking material relating to the subject. . . . To achieve this objective more quickly and effectively, the freelance services of qualified science writers are being used."

143. This report was sent with a cover letter indicating that the report was "highly confidential" and warning that "no additional copies be made and that this copy not be placed in the files."

144. On July 31, 1954, Hill and Knowlton wrote a confidential report concerning TIRC's success in turning around the perception that cigarettes caused disease:

A FORWARD LOOK

Although the Industry has been bedeviled by sensational headlines generated often by publicity seeking researchers and a seeming revival of the anti-cigarette crusade, the trend is beginning to turn. In 1953, no voice was being raised on behalf of the Industry. Press comment was almost entirely limited to a reflection of unproven theories which most people were accepting as proven facts. No balancing information was being made available.

The progress of the [TIRC's] program is bringing greater acceptance of the Industry's sincere efforts. The publicity accompanying each step taken so far by the Tobacco Industry Research Committee, particularly since the selection of the Scientific Director and the Scientific Advisory Board, has helped bring understanding that the charges against tobacco are not proven and are not joined in by a large body of scientific opinion. The bulk of editorial comment now appearing approves and, at times, applauds the action of the Industry.

145. Another Hill and Knowlton memorandum describing projects from August through September 1954 indicated that TIRC's Scientific Director and Chairman met with publishers and repeated the promise that the Tobacco Companies intended to support a "long-range . . . research program devoted primarily to the public interest." This statement was made to publishers, presidents, or board chairmen of the New York Times, the New York Herald Tribune, Scripps-Howard Newspapers, Hearst Consolidated Publications, and Luce Publications.

146. The memorandum describes how TIRC influenced television shows:

A conference was held with Edward R. Murrow, Fred Friendly, his producer, at the [TIRC] offices in the Empire State Building. . . .The Murrow staff emphasized the intention to present a coldly objective program with every effort made to tell the story as it stands today, with special effort toward balanced perspective and concrete steps to show that the facts still are not established and must be sought by scientific means such as the research activities of the [TIRC] will support. Mr. Murrow was assured of continued cooperation from the [TIRC] to the extent possible under the scope of the TIRC program.

147. On April 28, 1955, Hill and Knowlton wrote a confidential "Public Relations Report" to the TIRC. The report found that after a year of intensive public relations activities "progress has been made":

The first "big scare" continues on the wane. There is much general awareness of the big IF factors involved. . . . Treatment of the cigarette-health issue in public media continues to improve from the [TIRC] point of view. Even adverse stories now tend to carry modifying statements. Positive stories are on the ascendancy.

148. Many other confidential internal company documents indicate awareness that the so-called "research" councils were intended not to find out and provide the truth or objective facts, but to play a propaganda and public relations role, as the following examples demonstrate:

a. "CTR began as an organization called Tobacco Industry Research Council (TIRC). It was set up as an industry shield in 1954. That was the year statistical accusations relating smoking to diseases were leveled at the Industry; litigation began; and the Wynder/Graham reports were issued. CTR has helped our legal counsel by giving advice and technical information, which was needed at court trials. . . . [T]he public relations value of CTR must be considered and continued. . . . It is very important the industry continue to spend their dollars on research to show that we don't agree that the case against smoking is closed."

b. "CTR is the best & cheapest insurance the tobacco industry can buy and without it the Industry would have to invent CTR or would be dead."

c. "Historically, the joint industry funded smoking and health research programs have not been selected against specific scientific goals, but rather for various purposes such as public relations, political relations, position for litigation, etc. . . . In general, these programs have provided some buffer to public and political attack of the industry, as well as background for litigious [sic] strategy."

d. "Historically, it would seem that the 1954 emergency was handled effectively. From this experience there arose a realization by the tobacco industry of a public relations problem that must be solved for the self-preservation of the industry."

e. "To date, the TIRC program has carried its fair share of the public relations load in providing materials to stamp out brush fires as they arose. While effective in the past, this whole approach requires both revision and expansion. The public relations program . . . was like the early symptoms of diabetes -- certain dietary controls kept public opinion reasonably healthy. When some new symptom appeared, a shot of insulin in the way of a news release . . . kept the patient going."

f. "When the products of an industry are accused of causing harm to users, certainly it is the obligation of that industry to endeavor to determine whether such accusations are true or false. Money spent for such purpose should not be regarded as a charitable contribution but as a business expense -- an expense necessary to keep that industry alive. In view of the billions of dollars of annual sales of our industry our expenditures for health research has been of a minimal order."

g. "For nearly twenty years, this industry has employed a single strategy to defend itself on three major fronts -- litigation, politics, and public opinion. While the strategy was brilliantly conceived and executed over the years, helping us win important battles, it is only fair to say that it is not -- nor was it intended to be -- a vehicle for victory. On the contrary, it has always been a holding strategy, consisting of creating doubt about the health charge without actually denying it."

h. In the cigarette controversy, the public -- "especially those who are present and potential supporters (e.g., tobacco state congressmen and heavy smokers) -- must perceive, understand, and believe in evidence to sustain their opinions that smoking may not be the causal factor."

Defendants Fraudulently Hid, Concealed, and Destroyed Research

149. As discussed above, in many statements published in and following 1954, Defendants represented themselves as intending to discover and disclose the truth about smoking and health. Internal company documents reveal that in this period Defendants suppressed and concealed a great deal of research and information that was contrary to their public positions.

150. For example, Brown & Williamson continued to conduct and conceal biological research confirming that tobacco products cause adverse health effects. The more sensitive research was often undertaken by Brown & Williamson's British affiliate, acting on behalf of Brown & Williamson, including research at a laboratory called Harrowgate. This laboratory performed work for a number of cigarette manufacturers, and some of this research was shared with these other companies and TIRC. Brown & Williamson's use of the code name "zephyr" to refer to cancer helped suppress its confidential findings that there is a "causal relation" between "zephyr and tobacco smoking."

151. In the late 1960s, R.J. Reynolds had a state-of-the-art laboratory in Winston-Salem, nicknamed "the mouse house." There, scientists conducted research with mice, rats, and rabbits and began to uncover promising avenues of investigation into the mechanisms of nicotine-related diseases. One day in 1970, this entire research division was disbanded and all 26 scientists were fired without notice. R.J. Reynolds's in-house attorneys had collected dozens of research notebooks from the biochemists several months before the firings. These research notebooks remain undisclosed.

152. In the early 1980s, researchers working at a Philip Morris laboratory in Richmond further confirmed the addictive nature of nicotine and worked to develop a synthetic form of nicotine that would avoid its cardiovascular complications. The research was conducted by Victor J. DeNoble and his colleague Paul C. Mele. The research was so secretive that laboratory animals were brought in at night under cover.

153. The researchers discovered that nicotine demonstrated addictive qualities and that the animals self-administered the substance by pressing levers to obtain nicotine. The synthetic or artificial forms of nicotine or nicotine analogues under research affected the brain much like nicotine, without the harmful cardiovascular effects of nicotine or tobacco. Rats using the analogue behaved as though they had a nicotine "high," but did not show signs of heart distress, such as rapid heart beat.

154. In June 1983, DeNoble was called to the Philip Morris headquarters in New York to brief top executives. After the meeting, company lawyers visited the lab and reviewed research notebooks. There were discussions of shifting the research out of the company, perhaps to DeNoble and Mele as outside contractors or to a lab in Switzerland, to distance Philip Morris from the results.

155. In April 1984, Philip Morris representatives instructed the researchers to stop work, kill all the animals, turn in their security badges, and withdraw a paper on the addictive qualities of nicotine that had been accepted for publication by a scientific journal. Philip Morris closed the laboratory, fired the researchers, forced them to agree to remain quiet about their work, and threatened them with legal action if they published their work.

156. The researchers remained silent about their work until testifying in 1994 before a congressional committee in Washington, D.C.

157. Defendants did not merely conceal all negative research information, but they also assigned all research information indicating that cigarette smoking is addictive to a so-called "Special Projects" division of TIRC, where the information was secreted from the public and concealed from discovery in litigation against the Tobacco Companies by improper assertion of the attorney-client privilege.

158. The purpose of the "Special Projects" division was to choose selectively, and with bias, research projects regarding the links between smoking and disease in order to develop expert witnesses for defense purposes in tort suits against the Tobacco Companies. Consistent with this purpose, the Tobacco Companies' attorneys were substantially involved in strategic and specific decision-making within the "Special Projects" division in order to hide adverse information and evidence from the public through spurious claims of attorney-client privilege. For example, a memorandum from 1981 explained, "Difference between CTR and Special Four (lawyers' projects). Director of CTR reviews special projects -- if project was problem for CTR, use Special Four."

159. The Tobacco Companies have been successful in using the CTR Special Projects division to conceal harmful information. Research from the Special Projects division remains shielded from public scrutiny. Individual companies furthered the conspiracy by shielding company documents with bogus claims of attorney-client privilege and through tactics such as that undertaken by Brown & Williamson, which over the years has transferred highly relevant documents (described disingenuously but ironically as "deadwood") to its British parent company, B.A.T., so that they would not be discovered in legal proceedings in the United States.

Defendants Misrepresented Health Claims

160. As discussed below, Defendants restrained, concealed, and suppressed research and potential development, marketing, and manufacturing of less harmful and less addictive cigarettes. Despite their ability to produce less harmful cigarettes, Defendants did not market such products, except in limited test markets, which they later abandoned. Instead, Defendants fraudulently promoted filtered and low-tar cigarettes as safer or healthier, which was untrue.

161. During the early 1950s, when the first studies implicating smoking as a cause of lung cancer were being publicized, cigarette sales fell for the first time since the depths of the Great Depression. Defendants responded with massive advertising and public relations campaigns claiming that smoking filtered cigarettes was a reasonably safe alternative to quitting. In 1950, only about one percent of cigarettes were sold with filters. By the end of that decade, more than half of all cigarettes were sold with filters.

162. For example, Philip Morris ads claimed that "no other popular filter cigarette delivers less nicotine and tar." Its Viceroy cigarettes were promoted with the "health guard filter." Some of the claims included:

New health guard filter makes Viceroy better for your health; new king-size Viceroy gives you double-barreled health protection. Leading N.Y. doctor tells his patients what to smoke! Filtered cigarette smoke is better for health.

Prominent physician tells patients -- smoke Viceroy filter-tipped cigarettes. The nicotine and tar is trapped by the Viceroy filter and cannot reach mouth, throat, or lungs. You can see the health guard filter discolor from nicotine and tars which might otherwise be drawn into your mouth, throat, and lungs.

163. In 1952, Lorillard introduced Kent cigarettes with the "micronite" filter. Lorillard's ads claimed: "Don't be misled by conflicting claims. . . . Today as before you get less tars and nicotine in Kent than any other leading cigarette." It was represented that the micronite filter removed seven times more tar and nicotine than any other cigarette. Lorillard stated that the material in the Kent filter was developed for gas masks during the war and was at that time being used to remove radioactive particles from the air at atomic power plants. In an ad, Lorillard purportedly cited an article in the Journal of the American Medical Association:

These findings -- which show the effects of various types of cigarettes on the human system, and put Kent in a class all by itself where health protection is concerned -- have been made available to doctors. . . . It is known and provable that there is only one way to take the irritants out of tobacco smoke in sufficient quantity for the sensitive smoker. That is to take them out with a filter . . . [Kent is] a really good smoke and real protection. (Emphasis in original.)

164. In the first weeks after it was introduced, sales of Kent cigarettes greatly exceeded Lorillard's original expectations. In the early months, the biggest problem faced by the company was keeping dealers supplied.

165. Between 1952 and 1957, more than a dozen different filter cigarettes were introduced. In 1952, filter cigarettes accounted for less than one percent of the market. By 1958, there were filters on more than 40 percent of cigarettes. The decline in cigarette sales of 1953 and 1954 was reversed, and by 1957 cigarette sales exceeded the 1952 record.

166. There is no evidence that low-tar/low-nicotine cigarettes provide a significant health benefit or are materially less addicting. In most instances, low-tar/low-nicotine cigarettes increase the risk of emphysema, heart disease, and other diseases caused by smoking and are just as addictive as ordinary cigarettes. This is because smokers of low-tar/low-nicotine cigarettes tend to smoke more, inhale more deeply, and hold the smoke in their lungs longer, in order to maximize their intake of nicotine.

167. Most smokers compensate for the alleged reduced nicotine delivery from filtered cigarettes by smoking more. Since the advent of filters, average daily consumption for the typical smoker has increased from 20 to 30 cigarettes. Thus, any marginally reduced lung cancer risk from most conventional filters has been achieved at the cost of a greater risk of emphysema, heart disease, stroke, and other diseases.

168. The Tobacco Companies designed their so-called "light" products so that advertised tar and nicotine labels understate the amounts of tar and nicotine actually ingested by human smokers. Such design features include a technique called filter ventilation in which nearly invisible holes are drilled in the filter paper, or the filter paper is made more porous. Predictably, many smokers of advertised low-tar and nicotine cigarettes block the tiny, laser generated perforations in ventilated filters with their fingers or lips, thereby resulting in greater tar and nicotine yields to those smokers than those measured by the FTC smoking machine.

169. The Tobacco Companies know that the ability to block ventilation holes allows smokers to "compensate" for nicotine losses that would otherwise be caused by tar-reducing modifications. The Tobacco Companies have studied smoker compensation in order to design cigarettes that allow smokers to compensate for lower nicotine yields. One such design feature is known as "elasticity." This refers to the ability of a cigarette, whatever its FTC measured nicotine yield, to deliver enough smoke to permit a smoker to obtain the nicotine he needs, e.g., through more or longer puffs or by covering ventilation holes.

170. Industry studies show that smokers tend to ingest close to the same amount of nicotine from each cigarette despite differences in yield as measured by the FTC smoking machine. In a 1974 BATCO conference, researchers described the results of one such study:

The Kippa study in Germany suggests that whatever the characteristics of cigarettes as determined by smoking machines, the smoker adjusts his pattern to deliver his own nicotine requirements (about 0.8 mg. per cigarette).

Smokers' compensation to obtain adequate nicotine also results in the delivery of more tar than in the FTC test measure.

171. The use of ammonia is another method used by the Tobacco Companies to reduce the FTC-measured tar and nicotine levels in their cigarettes over the past two decades while still furnishing smokers with sufficient nicotine delivery. According to John Kreisher, a former associate scientific director for CTR, "[a]mmonia helped the industry lower the tar and allowed smokers to get more bang with less nicotine. It solved a couple of problems at the same time."

172. However, the use of the more potent "free" nicotine that ammonia helps release, as opposed to the slower acting salt-bound nicotine, also serves to increase the amount of nicotine delivered to smokers of "light" cigarettes. An ammoniated cigarette that delivers more potent nicotine to smokers measures the same as a cigarette with no such additives.

173. The Tobacco Companies maintain that nicotine levels follow tar levels. In the words of Dr. Alexander Spears, Vice Chairman of Lorillard, in his 1994 testimony before the Waxman Subcommittee -- "[n]icotine [level] follows the tar level," and the correlation between the two "is essentially perfect" and "shows that there is no manipulation of nicotine." Dr. Spears neglected to mention to Congress that, in a 1981 study not intended for public release, he stated explicitly that low-tar cigarettes use special blends of tobacco to keep the level of nicotine up while tar is reduced: "[T]he lowest tar segment [of product categories] is composed of cigarettes utilizing a tobacco blend which is significantly higher in nicotine." R.J. Reynolds, Lorillard, American Tobacco, and the Tobacco Institute have similarly represented to the public and to the FDA that the nicotine levels in their products are purely a function of setting the tar levels of such products.

174. American Tobacco told the Waxman Subcommittee in an October 14, 1994 letter that "nicotine follows 'tar' delivery, i.e., high 'tar' -- high nicotine, low 'tar' -- low nicotine . . . Nicotine is neither adjusted nor altered to compensate for losses inherent in the manufacturing process." Internal company documents reviewed by the Waxman Subcommittee show, however, that American Tobacco's experimentation with adding nicotine to its tobacco was extensive -- extensive enough for American Tobacco executive John T. Ashworth to instruct employees in a confidential memorandum: "In the future our use of nicotine should be referred to as 'Compound W' in our experimental work, reports, and memorandums, either for distribution within the Department or for outside distribution."

175. Recent tests conducted at the direction of the FDA show that the low-tar brands actually have more nicotine by weight than the non-"light" brands. The high level of nicotine found in lower tar cigarettes seriously misleads consumers and renders false the Tobacco Companies' claim of an "essentially perfect" correlation between reduced tar and nicotine levels. According to the FDA, the Tobacco Companies use a combination of the methods described above to boost nicotine delivery to compensate for nicotine losses from the application of tar-reducing design modifications. The Tobacco Companies thus maintain, by means of nicotine addiction, a continuing market for a product that consumers are misled to believe contains less of each of the harmful ingredients in regular cigarettes.

176. Against this mounting body of evidence of the Tobacco Companies' manipulation and control of nicotine levels in cigarettes, the Tobacco Companies continue to deny to the public, and to Congress under oath, that they manipulate and control nicotine levels. Top executives from Philip Morris, R.J. Reynolds, Lorillard, Liggett and Brown & Williamson testified before Congress in April 1994 that their respective companies do not manipulate nicotine, add it, independently control it, restore it during the manufacturing process, or otherwise achieve a minimum level of nicotine in their products. Thomas E. Sandefur, Jr., CEO of Brown & Williamson, has admitted that the company controlled nicotine, but in a now familiar refrain, stated that the company did so only for "taste." A primary purpose and effect of these decades-old denials and the suppression of scientific testing have been that governmental entities did not act earlier and more aggressively to reduce cigarette smoking and limit sales of cigarettes; nor did the BC/BS Plans or their members act earlier and more aggressively to reduce cigarette smoking. Actions that would have reduced smoking and limited sales were not taken because Defendants concealed and suppressed information that would have formed the basis for action.

177. CTR concluded in 1974:

The public should be informed that based on present knowledge, cigarettes with either reduced "tar" or reduced gas vapor constituents cannot be considered safe, that is, smoking these cigarettes does not eliminate damage to health such as risk of lung cancer.

The public was not so informed. Despite their knowledge, the Tobacco Companies continue to market low tar/low-nicotine cigarettes as if the effects of the tar and nicotine were lowered, when they are not.

The Conspiracy To Suppress Research and Product Development of Less Harmful or Less-Addictive Tobacco Products

178. As early as 1953, a tobacco industry research director stated: "Boy, wouldn't it be wonderful if our company was first to produce a cancer free cigarette. What we could do to competition!" Nevertheless, the Tobacco Companies recognized that the nature of the dangers posed by their products already in the market was such that a conspiracy of silence and inaction was preferable and that it was important in the words of Hill and Knowlton to "develop some understanding with companies that, on this problem, none is going to seek a competitive advantage by inferring to its public that its product is less risky than others." As a result, beginning in approximately 1953, the Tobacco Companies conspired by way of a so-called "gentlemen's agreement" to suppress independent research and development on the issue of smoking and health.

179. A 1968 internal Philip Morris draft memorandum specifically referred to the 1953 "agreement" not to compete, referring to possible violations of the "gentleman [sic] agreement" in the form of independent research by some of the major companies. The memorandum stated: "We have reason to believe that in spite of the gentleman [sic] agreement from the tobacco industry in previous years that at least some of the major companies have been increasing biological studies within their own facilities." Although conspirators seldom live by the terms of their unlawful agreements, as discussed below, in the final analysis, none of the Tobacco Companies ever commercially marketed a truly less harmful cigarette, because any company that attempted to do so ultimately succumbed to pressure imposed by the other co-conspirators.

180. A 1968 memorandum to the CEO of Liggett describing a meeting of the research directors of the Big Six manufacturers stated that with regard to the topic of smoking and health, "a general feeling that an industry approach as opposed to an individual approach was highly desirable."

181. Following the 1953 "gentlemen's agreement," although the companies competed on product features such as filters and the levels of tar and nicotine -- none of which actually reduced the health risks presented by tobacco -- the Tobacco Companies adhered to their agreement by not introducing less harmful cigarettes. During the 1970s and 1980s, Defendants continued to suppress information about the harmful effects known to them about nicotine and tobacco and continued instead to associate smoking with glamorous, athletic, and successful lifestyles.

182. Significantly, each tobacco company adhered to the conspiracy even while understanding that developing a less harmful cigarette would be to its own competitive advantage in the market place.

183. In 1958 an internal proposal was presented to the Director of Research and Development at Philip Morris to study ways of "identifying carcinogenic substances as well as all substances in cigarette smoke that are irritating or are known to produce undesirable physiological effects and find a way of removing them. If the latter appears to be impossible, let us develop a non-tobacco cigarette which does not have them to begin with." The author of the proposal stated: "I'll bet that the first company to produce a cigarette claiming a substantial reduction. . . in tars and nicotine, or an ersatz cigarette whose smoke contains no tobacco tars, and with good smoking flavor, will take the market."

184. Despite the prospect of taking the market, Philip Morris did not pursue the removal of carcinogens.

185. Similarly, in 1966, the Director of Research and Development at Lorillard wrote to the Company's president, stating:

It is thought that the development of a cigarette, the smoke from which gives little or no tumorigenic response would be regarded as a highly significant development by the scientific community . . . undoubtedly such a product would place the corporation in a highly enviable position, and in the writer's opinion a two or three fold increase in sales could result within a short period . . . It is unrealistic to envision a cigarette sales monopoly in that such a product would be effectively duplicated by competitors in a short time. On the other hand, if we fail to pursue this research and/or a competitor marketed a cigarette whose smoke condensate gives little tumorigenic response, the writer is of the opinion that a significant sales loss could result.

186. Despite the marketing opportunity outlined in the above memorandum, neither Lorillard nor its competitors violated the conspiracy and marketed a less harmful cigarette.

187. A June 21, 1954 Hill and Knowlton memorandum states:

Early in the life of the [TIRC], it was accepted as a basic principle that every effort should be made to avoid stimulating more adverse publicity and controversy on the subject of tobacco and health. The principle has been and will continue to be carefully adhered to in the work carried on for the committee.

188. The Tobacco Companies were aware that the agreement creating TIRC restrained competition by requiring each of the Tobacco Companies to forego individual commercial advantage so that the conspiracy would hold. As Philip Morris noted, similar agreements in other countries restrained competition: "On the Continent individual companies and monopolies have agreed to pool research on the health question, thereby reducing it as a basis for competition." BATCO Chairman Sir Charles Ellis said, "If this Company makes any significant scientific discovery clearly relevant to health it will share its knowledge with its co-members [in a U.K. committee of tobacco manufacturers] and not seek to obtain competitive commercial advantage."

189. Defendants' intentional agreement not to compete in the health care segment and to suppress truly healthier alternative products is shown in the transcript of a 1962 meeting of Brown & Williamson companies in Southampton, England, in which the chairman remarks that, if the company manufactured safer brands, "how to justify continuing the sale of other brands? . . . It would be admitting that some of its products already on the market might be harmful. This would create a very difficult public relations situation."

190. U.S. Tobacco terminated an employee and apologized to the Big Six after the employee was quoted in a New York Post article to the effect that smokeless tobacco is less dangerous than smoking, thus demonstrating to its co-conspirators its support for the conspiracy. Ernest Pepples of Brown & Williamson reported this in a memo, in which he wrote that he had been called by U.S. Tobacco's General Counsel, Jim Chapin, Pepples stated:

Chapin says the statements quoted were unauthorized and do not represent his company's views. He has asked me to extend U.S. Tobacco's apology to each of the cigarette companies and advised me that the individual quoted in the article is no longer employed at U.S. Tobacco. Chapin says U.S. Tobacco has instituted smoking and health seminars throughout the company.

On information and belief, this reference to "smoking and health seminars" referred to U.S. Tobacco's instructions to employees not to disseminate truthful information about the adverse health effects of nicotine tobacco products.

191. All Defendants were keenly aware of the risk to the Tobacco Companies if any of them sought a competitive advantage by developing and marketing a truly safer or less addictive product. The risk was avoided by their agreeing not to compete on that basis.

192. For example, in 1970, an outside lawyer in a firm specializing in representing the Tobacco Industry wrote to DeBaun Bryant, General Counsel at Brown & Williamson, that explicit references to research into safer products, products which are less biologically active, or "healthy cigarettes":

constitute a real threat to the continued success in the defense of smoking and health litigation. Of course, we would make every effort to "explain" such statements if we were confronted with them during a trial, but I seriously doubt that the average juror would follow or accept the subtle distinctions and explanations we would be forced to urge. . . . [E]mployees in both companies [Brown & Williamson and BATCO] should be informed of the possible consequences of careless statements on this subject.

193. The Cigarette Advertising Code, adopted by Defendants, was another mechanism used to enforce the illegal agreement not to compete by disclosing truthful information about nicotine tobacco products. Among other provisions, it prohibits health claims in advertisements released by the Tobacco Companies unless the "Code Administrator," to whom all cigarette advertisements are required to be submitted, approves of the advertisement. The Code provided a mechanism to monitor and police Defendants' illegal agreement, and to create a disincentive for research, development, and marketing of a less harmful cigarette.

194. The Tobacco Companies were also aware that consumer demand would support less harmful products. The Tobacco Companies knew that demand had shifted to filter and low-tar/low-nicotine cigarettes in response to the positioning of these products as safer alternatives. But the Tobacco Companies knew that "the smoker of a filter cigarette [claiming reduced tar] was getting as much or more nicotine and tar as he would have gotten from a regular cigarette. He had abandoned the regular cigarette, however, on the ground of reduced risk to health." The Tobacco Companies recognized a difference between "health-oriented" cigarettes, which were never marketed on a wide basis, and "health-image" cigarettes, such as low-tar/low-nicotine products. The latter were a marketing tool intended to give the illusion of a safer product. That illusion was a lie.

Suppression of Less Harmful Cigarettes Pursuant to the Conspiracy

195. Several Defendants did in fact conduct some research to develop less harmful cigarettes and nicotine alternatives. But Defendants conspired and acted in concert to suppress and exclude such products from the market.

196. Philip Morris developed a less harmful cigarette and then suppressed commercial marketing of the product. Philip Morris referred to this cigarette as having "superior physiological performance." According to a confidential memorandum to the Board of Directors, Philip Morris knew that there would be competitive pressure to produce "less harmful" cigarettes if one were to be marketed. The memorandum stated: "Our philosophy is not to start a war, but if war comes, we aim to fight well and to win." Another Philip Morris secret document stated that "after much discussion we decided not to tell the physiological story which might have appealed to a health conscious segment of the market. The product as test marketed . . . was unacceptable to the public ignorant of its physiological superiority."

197. As discussed above, in the early 1980s, Philip Morris researchers in Richmond worked to develop a synthetic form of nicotine that would avoid its cardiovascular complications, until Philip Morris abruptly shut down the research operation.

198. R.J. Reynolds's efforts to develop a less harmful cigarette also focused on delivering nicotine to the consumer without the harmful constituents of tobacco smoke. In the late 1980s, R.J. Reynolds developed and test-marketed "Premier," a cigarette that heated but did not burn tobacco. This made for a healthier nicotine delivery system. A 1987 memorandum concerning Premier, from one of R.J. Reynolds's outside law firms, warned that this smokeless cigarette could "have significant effects on the tobacco industry's joint defense efforts" and that "[t]he industry position has always been that there is no alternative design for a cigarette as we know them." Consistent with the conspiracy, R.J. Reynolds's test marketing of Premier did not include information about the relative harmfulness of Premier. R.J. Reynolds, having agreed not to compete on the basis of health and safety, concluded that Premier was a failure.

199. Liggett researched and developed a less harmful cigarette, but did not market the product, recognizing that doing so would "indict" the whole Industry. Liggett was also aware that Philip Morris would "clobber" Liggett for violating the agreement not to compete based on health claims or development of a less harmful cigarette. Liggett's less harmful cigarette research project, called XA, was initiated in 1968 and, after a minimal expenditure of only $14 million, Liggett found that "[c]igarette tar has been neutralized" and there was "[n]o evidence for new or increased hazard."

200. Nevertheless, these cigarettes -- which were believed by Liggett to be of "commercial quality" -- were not commercially marketed, because of Defendants' conspiracy. James Mold, assistant director of research at Liggett during the project, recently testified that Liggett aborted the development and marketing of a less harmful cigarette in the following terms:

a. Mold stated that the XA project produced a safer cigarette: "We produced a cigarette which was, we felt, commercially acceptable as established by some consumer tests, which eliminated carcinogenic activity."

b. Mold testified that after 1975, all meetings on the project were attended by lawyers, lawyers collected all notes after the meetings, and documents were directed to the law department to maintain secrecy through bogus assertions of the attorney-client privilege. He stated: "Whenever any problem came up on the project, the Legal Department would pounce upon that in an attempt to kill the project, and this happened time and time again."

c. Mold testified that he was at a conference of scientists in Buenos Aires prepared to present his research regarding a less harmful cigarette when he received a "frantic call" from legal counsel and was told not to present the paper or issue the press release. He was instructed not to publish his results in the Journal of Preventative Medicine.

d. Mold was asked why Liggett did not market a less harmful cigarette. He answered, "Well, I can't give you, you know, a positive statement because I wasn't in the management circles that made the decision, but I certainly had a pretty fair idea why. . . . [T]hey felt that such a cigarette, if put on the market, would seriously indict them for having sold other types of cigarettes that didn't contain this, for example." Also, "[a]t a meeting we held in . . . New Jersey at the Grand Met headquarters . . . the various legal people involved and the management people involved and myself were present. At one point Mr. Dey who at that time, and I guess still is the president of Liggett Tobacco, made the statement that he was told by someone in the Philip Morris company that if we tried to market such a product that they would clobber us."

201. Brown & Williamson also developed a less harmful cigarette which it did not market. Brown & Williamson's Project "Ariel" used a heating, as opposed to a burning, system. Its Project "Janus" was intended to identify hazardous components of cigarette smoke so that they could be removed. Jeffrey Wigand, former Vice President for Research and Development for Brown & Williamson, stated that he was instructed by the company's president to abandon all efforts to develop a safer product. He has testified that he was told, generally, "[t]hat there can be no research on a safer cigarette. Any research on a safer cigarette would clearly expose every other product as being unsafe and, therefore, present a liability issue in terms of any type of litigation."

202. Brown & Williamson also conducted research on tobacco substitutes or analogues, as did a number of the other companies. These substitutes were sought as a means to duplicate some of the characteristics of nicotine without toxic or harmful effects. For example, Brown & Williamson's parent developed "Batflake," a tobacco substitute. Laboratory tests showed that use of Batflake reduced a number of the harmful effects of smoking in direct proportion to the amount used in a cigarette. So far as is known, none of the substitute products were ever marketed in the United States.

203. In 1980, Brown & Williamson and its parent company abandoned the less harmful product search, describing it as: "Dangerous area [research into irritation and smoke inhalation]. Please do not publish or circulate. No more work is needed on biological side."

204. Defendants collectively abandoned their efforts to make less harmful or less addictive cigarettes commercially available because of their conspiracy, which began during the 1950s and continues to this day. There was never any "war" within the tobacco industry over who would produce a less harmful cigarette. To this day, Defendants have continued to observe the terms of their conspiracy, pursuant to which no Defendant has marketed a less harmful cigarette. Defendants' research efforts confirm, however, that Defendants knew that nicotine tobacco products were harmful, deadly, and addictive.

Defendants Manipulated Nicotine To Assure Addiction

205. The Tobacco Companies use a variety of means to manipulate and precisely control the levels and potency of nicotine in their products in order to assure continued addiction and to maintain their market in unsafe, addictive cigarettes.

206. Dr. David A. Kessler, former Commissioner of the Food and Drug Administration, recently testified to Congress that cigarette manufacturers can add nicotine to any part of the cigarette and can precisely manipulate the levels and delivery rate of the nicotine.

207. Dr. Kessler testified that "the cigarette industry has attempted to frame the debate on smoking as the right of each American to choose. The question we must ask is whether smokers really have that choice." Dr. Kessler stated:

a. "Accumulating evidence suggests that cigarette manufacturers may intend this result -- that they may be controlling smokers by controlling the levels of nicotine in their products in a manner that creates and sustains an addiction in the vast majority of smokers."

b. "We have information strongly suggesting that the amount of nicotine in a cigarette is there by design."

c. "The public thinks of cigarettes as simply blended tobacco rolled in paper. But they are much more than that. Some of today's cigarettes may, in fact, qualify as high technology nicotine delivery systems that deliver nicotine in precisely calculated quantities -- quantities that are more than sufficient to create and to sustain addiction in the vast majority of individuals who smoke regularly."

d. "The history of the tobacco industry is a story of how a product that may at one time have been a simple agricultural commodity appears to have become a nicotine delivery system."

e. "[T]he cigarette industry has developed enormously sophisticated methods for manipulating nicotine levels in cigarettes."

f. "In many cigarettes today, the amount of nicotine present is a result of choice, not chance."

g. "[Since] the technology apparently exists to reduce nicotine in cigarettes to insignificant levels, why, one is led to ask, does the industry keep nicotine in cigarettes at all?"

208. Dr. Kessler also testified that, as one example of this manipulation, Brown & Williamson had developed a tobacco plant, code named "Y-1," with perhaps twice the nicotine content of regular tobacco and had marketed cigarettes with Y-1 tobacco in the United States in 1993.

209. The Y-1 conspiracy was aided and abetted by DNA Plant Technology Corp. ("DNAP"), a biotechnology firm engaged in the development and improvement of various plant species and varieties through the use of advanced breeding and genetic engineering techniques. In April 1985, Brown & Williamson contracted with DNAP to develop "commercial high-nicotine varieties" of tobacco. Brown & Williamson entered into this conspiracy to develop a reliable source of high-nicotine tobaccos that it could then use to control the nicotine levels in its cigarettes.

210. To hide the nicotine manipulation from the public and government regulators, Brown & Williamson had most of the Y-1 development work done in Brazil, through its affiliate, Souza Cruz Overseas. To conceal this conspiracy, Brown & Williamson instructed DNAP to tell FDA investigators that Y-1 had "never been commercialized." Only after the FDA discovered U.S. customs invoices indicating that 500,000 pounds of Y-1 nicotine-enriched tobacco had been shipped to Brown & Williamson did the company finally admit that it had developed a high-nicotine tobacco. DNAP recently pled guilty to the illegal export of Y-1 tobacco seed into Brazil in violation of U.S. law.

211. As another example, the Tobacco Companies also add chemicals to increase the alkalinity, or smoke pH, of tobacco blends and thereby increase nicotine potency and deliver an enhanced "nicotine kick."

212. In testimony given on January 28, 1998, in State of Minnesota & Blue Cross & Blue Shield of Minnesota v. Philip Morris Inc., No. C1 94-8565 (Minn. Dist. Ct.), a civil action against the Tobacco Companies in St. Paul, Minnesota, Dr. Richard Kurt of the Mayo Clinic likened the effect of manipulating the alkalinity of cigarette smoke to "freebasing" nicotine.

213. The FDA's August 1995 report Nicotine in Cigarettes and Smokeless Tobacco Products describes in detail various techniques that the Tobacco Companies use to control nicotine levels and potency, noting that the Tobacco Companies exert as much control over the product as any other drug manufacturer:

a. "[C]igarette manufacturers manipulate and control the delivery of nicotine in marketed products. Cigarettes are designed to supply nicotine at consistent levels despite the wide variations in the nicotine levels of the raw materials, the immensely complicated combustion chemistry, and the complex chemical flow properties of a modern cigarette."

b. "Manufacturers use many techniques to control nicotine deliveries. . . . [T]he nicotine content and delivery of each brand of cigarettes is remarkably consistent from batch-to-batch and year-to-year. This level of control is analogous to that of the pharmaceutical industry in the production of prescription drugs."

c. "[T]he tobacco industry uses a number of methods to boost nicotine delivery in low-yield cigarettes. . . .Without the independent manipulation of nicotine, many of the techniques used to reduce tar would also substantially reduce nicotine. Instead, regardless of differences in labeled/advertised FTC nicotine yields and manufacturers' claims of low-nicotine delivery for certain brands, all cigarettes contain approximately the same amount of nicotine in the rod, and deliver about 1 mg of nicotine, enough to produce pharmacological effects."

d. "The tobacco industry's control and manipulation of nicotine delivery from cigarettes provides additional evidence of the Industry's intent to deliver pharmacologically satisfying levels of nicotine to smokers."

214. As a further example, as stated above, the Tobacco Companies add several ammonia compounds during the manufacturing process that increase the delivery of nicotine and almost double the nicotine transfer efficiency of cigarettes.

215. While Brown & Williamson publicly denied in 1995 that the use of ammonia in the processing of tobacco increases the amount of nicotine absorbed by the smoker, the company's own internal documents reveal that it and the other Tobacco Companies use ammonia compounds to increase nicotine delivery. A 1991 Brown & Williamson confidential blending manual states:

Ammonia, when added to a tobacco blend, reacts with the indigenous nicotine salts and liberates free nicotine. . . . As the result of such change in the ratio of extractable nicotine to bound nicotine in the smoke may be altered in favor of extractable nicotine. As we know, extractable nicotine contributes to impact in cigarette smoke and this is how ammonia can act as an impact booster.

According to the Brown & Williamson manual, all American cigarette manufacturers except Liggett use ammonia technology in their cigarettes.

216. Patents owned by the Tobacco Companies also show that the cigarette industry has developed the capability to manipulate nicotine levels in cigarettes to an exacting degree. For example:

a. A Philip Morris patent application discusses an invention that "permits the release . . . in controlled amounts and when desired, of nicotine in tobacco smoke."

b. Another Philip Morris patent application explains that the proposed invention is "particularly useful for the maintenance of the proper amount of nicotine in tobacco smoke" and notes that "previous efforts have been made to add nicotine to Tobacco Products when the nicotine level in the tobacco was undesirably low."

c. A 1991 R.J. Reynolds patent application states that "processed tobaccos can be manufactured under conditions suitable to provide products having various nicotine levels."

Defendants Continue to Fraudulently Conceal Their Manipulation of Nicotine

217. Despite their statements that they accepted responsibility for health issues related to smoking and would discover and disclose all aspects of smoking and health, Defendants have fraudulently failed to reveal their manipulation of nicotine levels and potency.

218. The Tobacco Companies continue to deny to the public, and recently denied to Congress under oath, that they manipulate and control nicotine levels.

219. In April 1994, executives of Philip Morris, R.J. Reynolds, Lorillard, Liggett, and Brown & Williamson testified to Congress that the companies do not manipulate, add, control, or restore nicotine during the manufacturing process or otherwise achieve a minimum level of nicotine in their products.

220. In April 1994, the Tobacco Companies placed advertisements across the country denying that they believe cigarette smoking is addictive and misleading the public about whether the cigarette manufacturers deliberately control nicotine levels in their products.

221. An advertisement placed by Philip Morris in newspapers across the country in April 1994 affirmatively represented that Philip Morris does not "manipulate" nicotine levels in its cigarettes and that "Philip Morris does not believe that cigarette smoking is addictive."

222. R.J. Reynolds placed a similar advertisement in newspapers across the United States in 1994 stating that "we do not increase the level of nicotine in any of our products in order to 'addict' smokers. Instead of increasing the nicotine levels in our products, we have in fact worked hard to decrease 'tar' and nicotine." R.J. Reynold's advertisement then touted its use of "various techniques that help us reduce the 'tar' (and consequently the nicotine) yields of our products."

223. Further, as discussed above, American Tobacco misrepresented its manipulation of nicotine levels to the Waxman Subcommittee.

Defendants Targeted Children And Minorities

224. The Tobacco Companies knew that nicotine was a highly addictive drug and that the cigarette delivery system for this drug caused cancer and other serious health problems, including death. The Tobacco Companies nevertheless sought to replace nicotine addicts who died, and they did so by marketing their products to children, knowing that if a child does not smoke by age 18, he or she is unlikely to become a nicotine addict -- and steady cigarette customer. Defendants also sought to increase the number of smokers by directly targeting members of racial minorities, both children and adults.

225. Despite the best efforts of parents, educators, and the medical profession, tobacco use among young people has not declined and is now on the rise. Sophisticated propaganda and advertising techniques by the Tobacco Companies create a mental image associating tobacco use with healthy, glamorous and athletic lifestyles, success, and sexual attractiveness. This is intended to get people to try cigarettes or other tobacco products. Within a short period of time, a new tobacco user becomes physiologically changed and addicted, as well as emotionally dependent. As the tobacco user begins to wish he or she could quit, the wrongful conduct of Defendants described herein reinforces the addiction and encourages the smoker to avoid the physical sickness, pain, and discomfort caused by depriving an addicted body of the nicotine it craves.

226. Smoking begins primarily during childhood and adolescence. Ninety percent of male smokers begin smoking before age 18. Each day more than 3,000 American teenagers start smoking. The Surgeon General summarized the problem in her 1994 report:

a. "Nearly all first use of tobacco occurs before high school graduation; this finding suggests that if adolescents can be kept tobacco-free, most will never start using tobacco."

b. "Most adolescent smokers are addicted to nicotine and report that they want to quit but are unable to do so."

c. "Cigarette advertising appears to increase young people's risk of smoking by affecting their perceptions of the pervasiveness, image, and function of smoking."

d. In 1990, cigarette advertising and promotional expenditures were almost $4 billion, making cigarettes the second most promoted consumer product, after automobiles, in the United States.

e. The most notorious example of the targeting of minors is the Joe Camel advertising campaign conducted by R.J. Reynolds. When R.J. Reynolds began this cartoon campaign in 1988, Camel's share of the children's market was only 0.5 percent. In just a few years, Camel's share of this illegal market has increased to 32.8 percent, representing sales estimated at $476 million per year. Another indication of the phenomenal success of this marketing campaign is the fact that in a recent survey of six-year-olds, 91 percent of the children could correctly match Old Joe with a picture of a cigarette, and the silhouette of Mickey Mouse and the face of Old Joe were nearly equally well recognized by almost all children.

f. All Defendants are aware of the fact that smoking begins primarily among youths who are not yet 18 years of age.

227. In testimony before the Commerce Committee of the U.S. House of Representatives on January 29, 1998, Philip Morris CEO Geoffrey C. Bible and CEOs of the other Tobacco Companies testified that marketing to teens should be actively discouraged because of the health hazards of nicotine cigarettes. Nevertheless, for years, the Tobacco Companies did just the opposite.

228. Newly released "secret" documents demonstrate that the youth market has been systematically targeted by the Tobacco Companies to replace dying adults (who themselves first became addicted as children). Among other things, these documents constitute admissions of intentional and immoral attempts to induce children to purchase cigarettes all in violation of various state laws, which prohibit the sale of tobacco products to minors. These admissions demonstrate the Tobacco Companies' deliberate overall scheme to create, maintain, and replenish a pool of slowly dying consumers through fraud, misrepresentations, and deceptive acts by manipulating nicotine and manipulating the marketplace.

229. For example, in 1974, the Board of Directors of R.J. Reynolds was presented with a marketing plan that highlighted as an "opportunity area" a plan to "increase our young adult franchise," with "young adults" described as including children 14, 15, 16 and 17 years old as well as people from age 18-24.

230. In 1980, the President of R.J. Reynolds received a report on that company's declining success in the market for sale of cigarettes to children ages 14-17. He was informed that "hopefully our various planned activities that will be implemented this fall will aid in some way in reducing or correcting these trends." That is, R.J. Reynolds hoped to sell even more cigarettes to children.

231. Similarly, in 1975, Brown & Williamson received an extensive report from its advertising agency with advice and analysis regarding the company's ability to attract "starters" (i.e., new smokers) in the age group 16-25.

Defendants Fraudulently Concealed Their Misconduct

232. Until recently, the BC/BS Plans did not know of Defendants' misconduct as described in this Complaint or of facts from which that misconduct might reasonably have been inferred or that would have led to its discovery. The BC/BS Plans could not have discovered these facts or the alleged violations at an earlier time because Defendants fraudulently concealed their course of conduct and suspended the results of the internal research, which was exclusively within the Defendants' control.

233. The BC/BS Plans are not fully aware of the method used by Defendants to conceal their activities, but believe that the methods used by Defendants in furtherance of their combination and conspiracy were by nature self-concealing and not of a type that could have reasonably been apparent to Plaintiffs.

234. One method of concealment was to bury relevant documents. In 1985, a Brown & Williamson attorney recommended that much of its medical research be declared "deadwood" and shipped to England. The attorney stated, "I had marked certain of the document references with an X. The X designated documents which I suggested were deadwood in the behavioral and biological studies area. I said that the B series are Janus series studies and should also be considered as deadwood." The attorney further suggested that the research, development, and engineering department also "should undertake to remove the deadwood from its files."

235. Brown & Williamson attempted to control other documents that its attorneys thought might later cause difficulties in product liability actions so that it could falsely claim an attorney-client privilege or work-product protection for those documents. Such documents included scientific reports that the company sought to protect from discovery:

[Scientific] material should come to you [corporate counsel] under a policy statement between you and Southampton [BATCO] which describes the purpose of developing the documents for B&W and sending them to you as use for defense of potential litigation. It is possible that a system can be devised which would exempt the Engineering reports because it might be difficult to maintain a privilege for covering such reports under the potential litigation theory. [C]ontinued Law Department control is essential for the best argument for privilege. At the same time, control should be exercised with flexibility to allow access of the R&D staff to the documents.

236. Other Defendants have used similar tactics to conceal the activities of the conspiracy. The joint actions of the conspiracy through CTR and the Tobacco Institute have been similarly shielded from scrutiny. Part of the document review undertaken by Brown & Williamson was an effort to conceal documents showing the true nature of the associations: "[In conducting document review,] pay special attention to documents suggesting that [Tobacco Institute] was used as a vehicle for the industry's alleged conspiracy to promote cigarettes through the 'open controversy' PR program."

237. CTR had a number of categories of research projects. Of particular significance is the category "special projects." Special projects were reviewed and selected for funding by the general counsel of the member companies. It may be reasonably inferred that lawyers controlled this research in an attempt to protect it from discovery and to further the conspiracy.

238. CTR's manipulation of research is shown in Committee of General Counsel minutes transmitted via a September 18, 1981 letter from an outside law firm, which stated: "When we started the CTR Special Projects, the idea was that the scientific director of CTR would review a project. If he liked it, it was a CTR special project. If he did not like it, then it became a lawyers' special project." These minutes explicitly acknowledge that the supposedly "independent" scientific director of CTR channeled research into "special projects" for Defendants' litigation efforts and concealment.

239. In State of Florida v. American Tobacco Co., No. CL 95-1466 (15th Judicial Circuit), a civil action brought by the Florida State Attorney General against the Tobacco Companies, Special Master R. William Rutter, Jr., ruled on April 9, 1997, that there was sufficient evidence to demonstrate fraud on the part of the Defendants:

[T]here is sufficient evidence which, if believed by the trier of fact, would be sufficient to support Plaintiffs' theory of fraud. Plaintiffs' theory . . . substantially relates to allegations that the Defendants engaged in extensive efforts to hide from and misrepresent to the public, the health hazards associated with cigarettes and that Defendants mislead and defrauded the public and public health officials regarding the relationship between smoking and health. There is also evidence that the Defendants utilized attorneys in carrying out and planning fraudulent activities and undertook to misuse the attorney/client relationship to keep secret research and other activities related to the true health dangers of smoking.

240. As recently as December 30, 1997, the trial court in State of Minnesota v. Philip Morris, Inc., No. C1-94-8565, sanctioned Brown & Williamson $100,000 for willfully violating a court order to produce documents and required disclosure of documents Brown & Williamson had claimed were subject to the attorney-client privilege. The court ruled that Brown & Williamson had "blatantly disobeyed an Order of the Court" and "challenged the authority of the judicial system and impugned the integrity of that system."

241. Defendants' fraudulent concealment, conspiracy, and illegal conduct continues to the present and unless enjoined, will continue in the future. For example, the Tobacco Companies continue to assert unfounded claims of privilege, to make bogus claims of confidentiality and to misuse protective orders in litigated cases.

242. Defendants still equivocate when asked under oath about the addictive nature of nicotine. For example, in 1994, each of the CEOs of the Tobacco Companies testified under oath before Congress that smoking was not addictive. For example, one industry representative testified: "I don't agree [that nicotine is addictive]. From what I've read on nicotine is that it contributes to the flavor, the taste of the product." Others testified as follows:

a. Andrew Tisch of Lorillard asserted that smoking does not cause cancer: "We have looked at the data and the data that we have been able to see has all been statistical data that has not convinced me that smoking causes death."

b. William L. Campbell of Philip Morris asserted, "Philip Morris doesn't manipulate nor independently control the level of nicotine in our products"; "Cigarette smoking is not addictive"; and "Philip Morris research does not establish that smoking is addictive."

c. James W. Johnston of R.J. Reynolds said that "smoking is no more addictive than coffee, tea or Twinkies."

243. U.S. Tobacco continues to compare cigarettes to candy and sweets. In April 1997, James Morgan, President of the U.S. tobacco division of Philip Morris, stated in a sworn deposition that cigarettes are not pharmacologically addictive, but are only "behaviorally addictive or habit-forming," just like "Gummi Bears" candy.

The Tobacco Industry Must Be Held Accountable

244. Despite the egregiousness of their conduct and the toll -- human and economic -- wreaked by the Tobacco Companies and their trade associations, the Tobacco Companies have so far enjoyed virtual immunity from liability because of their scorched-earth tactics in defending lawsuits and their successful conspiracy to conceal truthful information about the adverse health effects of tobacco and nicotine, including addiction.

245. In large part, the success of the Tobacco Companies has been founded on the industry's heretofore sanctioned litigation tactics. As one Tobacco Company lawyer wrote in 1988:

[T]he aggressive posture we have taken regarding depositions and discovery in general continues to make these cases extremely burdensome and expensive for Plaintiffs' lawyers, particularly sole practitioners. To paraphrase General Patton, the way we won these cases was not by spending all of Reynold' s money, but by making that other son of a bitch spend all his.

246. The Tobacco Companies' immunity is also attributable to its success in fraudulently suppressing harmful information about nicotine. By their conduct alleged herein, Defendants have directly injured the BC/BS Plans in their property and business, as alleged in the claims for relief set forth below.

247. The BC/BS Plans have expended and will continue to expend substantial sums of money due to the cost of health care benefits and related services for treatment of nicotine-caused diseases, such as cardiovascular diseases, cancer, emphysema, and addiction. The total cost for these BC/BS Plans will be proven at trial, but is estimated to be at least hundreds of millions of dollars per year.

New Evidence of Wrongful Conduct is Emerging

248. Defendants have used invalid claims of privilege to shield from public view and to withhold from adversaries in litigation tens of thousands of documents that bear directly on their wrongful conduct over the decades.

249. Improperly concealing documents and other evidence by improper claims of attorney-client privilege and other means has been a central aspect of Defendants' conspiracy. Among the evidence that Defendants long sought to keep hidden is a certain group of approximately 39,000 documents that the Tobacco Companies claimed were privileged. The Tobacco Companies' improper claims of privilege were rejected primarily under the crime-fraud exception to the privilege. In April 1998, the Tobacco Companies were ordered to turn these documents over to Congress and to plaintiffs in the Minnesota case, despite efforts by the Tobacco Companies in that case to stonewall production of the documents and, as part of their scorched earth tactics, to delay production through a frivolous appeal to the Supreme Court of the United States.

250. On April 22, 1998 most of these 39,000 documents were made available for public scrutiny on the Internet. Although the BC/BS Plans have not yet had an opportunity to examine these documents in detail, there appears to be no doubt that they include evidence of massive and continuing wrongdoing by the Tobacco Companies.

251. For example, these documents demonstrate that the Tobacco Companies manipulated and suppressed research results and that defendants had in place written instructions to destroy research results they considered harmful.

252. In one R.J. Reynolds document, a RJR official wrote to a company attorney that: "We do not foresee any difficulty in the event a decision is reached to remove certain reports from research files. Once it becomes clear that such action is necessary for the successful defense of our present and future suits, we will promptly remove all such reports from our files."

253. The documents also reveal on-going deception of the public, targeting of minors, manipulation of toxic additives and a host of other wrongful conduct, the full scope of which is not yet known.

CLAIMS FOR RELIEF ALLEGED BY ALL BC/BS PLANS

COUNT 1

VIOLATION OF THE FEDERAL RACKETEER INFLUENCED

AND CORRUPT ORGANIZATIONS ACT

(18 U.S.C. §§ 1962 (c) and 1962 (d))

[Against All Defendants except the Council for

Tobacco Research, the Tobacco Institute and the

Smokeless Tobacco Research Council, Inc.]

254. The BC/BS Plans restate and incorporate herein paragraphs 1 through 253 of this Complaint.

255. This claim for relief is asserted against each of the Defendants except the Tobacco Institute, STRC and CTR and arises under 18 U.S.C. § 1962(c) and (d) of the Federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), which provide:

(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity. . . .

(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection . . . (c) of this section.

256. At all relevant times, each of the Defendants was a "person" within the meaning of 18 U.S.C. § 1961(3), as each of the Defendants was "capable of holding a legal or beneficial interest in property."

257. At all relevant times, the Tobacco Institute, CTR (formerly TIRC) and STRC each constituted an "enterprise" within the meaning of 18 U.S.C. § 1961(4) and have together constituted an "enterprise" (collectively, the "Public Relations Enterprise") within the meaning of 18 U.S.C. § 1961(4). Each enterprise, including the Public Relations Enterprise, is an ongoing organization that has an ascertainable structure and purpose beyond the scope of Defendants' predicate acts and their conspiracy to commit those acts.

258. Each enterprise, including the Public Relations Enterprise, is an ongoing organization whose constituent elements function as a continuing unit in maximizing the sales of tobacco products, misleading the public and regulators as to the health hazards of tobacco products, suppressing the truth concerning the addictive properties of nicotine and of the Tobacco Companies' manipulation of nicotine levels and carrying out other elements of Defendants' scheme, including shifting the costs of health care for smoking related injury, disease and illness onto others, including the BC/BS Plans. Each enterprise, including the Public Relations Enterprise, has engaged in and its activities have affected, interstate and foreign commerce.

259. Such enterprises, including the Public Relations Enterprise, were born at an industry strategy meeting on December 15, 1953, at the Plaza Hotel in New York. The participants included representatives of American, R.J. Reynolds, Philip Morris, Lorillard, Brown & Williamson, U.S. Tobacco and Hill and Knowlton. As alleged above, the participants agreed to form an organization to orchestrate a public relations campaign to protect their cigarette market from the perceived threat posed by adverse medical reports. This committee was designed to promote an offensive, pro-cigarette stance to counter reports of health dangers caused by cigarettes. The public misinformation campaign continued over the next four decades and threatens to continue into the future.

260. Each of the Defendant Tobacco Companies has been associated with each of these enterprises. Each of the Defendant Tobacco Companies helped to direct each enterprise's actions and manage its affairs. Each of the Defendant Tobacco Companies conducted or participated, directly or indirectly, in the conduct of each enterprise's affairs through a pattern of racketeering activity in violation of 18 U.S.C. § 1962(c). Defendants' pattern of racketeering activity dates from at least 1953, continues to the present and threatens to continue into the future. Defendants' multiple predicate acts of racketeering, as alleged above, include the following:

a. Mail and wire fraud, in violation of 18 U.S.C. §§ 1341 and 1343. The Defendants engaged in schemes to defraud members of the public, including the BC/BS Plans and their members, regarding the health consequences associated with using nicotine tobacco products. Those schemes have involved suppression of information regarding the health consequences associated with smoking, as well as fraudulent misrepresentations and omissions reasonably calculated to deceive persons of ordinary prudence and comprehension. Defendants' misrepresentations and fraudulent concealment of material facts, directly or by implication, include but are not limited to the following: misrepresentations and fraudulent concealment of the addictive nature of nicotine and the adverse health consequences of tobacco products; misrepresentations that such health effects of addictiveness were unknown or unproven; misrepresentations about Defendants' ability to manipulate and about the manipulation of nicotine levels and the addictive qualities of cigarettes; misrepresentations that they would provide the public and governmental authorities with objective, scientific information regarding all phases of smoking and health; and fraudulent concealment of certain aspects of smoking and health, including the availability of safer cigarettes and less addictive cigarettes. Defendants executed or attempted to execute such schemes through the use of the United States mails and through transmissions by wire, radio and television communications in interstate commerce.

(i) Numerous documents were disseminated or transmitted by Defendants and their agents as part of a fraudulent scheme to mislead the public and others about the risks to health and life associated with smoking cigarettes. On information and belief, Defendants used the mails and wires to disseminate and transfer information in at least the following ways:

(a) Defendants' marketing and promotional activities and testimony communicated to the public nationwide in newspapers, magazines and other periodicals, as well as communications and testimony sent over broadcast media, were designed to deceive the public, including the BC/BS Plans and their members regarding, among other things, the addictive nature of smoking and of smokeless tobacco, the adverse health effects associated with tobacco use and the objectivity and accuracy of Defendants' "independent" research efforts regarding those health effects. Examples of these marketing and promotional activities are described above;

(b) Defendants' communications directed toward government agencies and health officials were designed to preserve and increase the market for nicotine tobacco products while concealing the deleterious health effects caused by those products. Examples of these communications with government agencies include Defendants' communications with the U.S. Surgeon General, as well as their communications among themselves regarding what should not be disclosed to the Surgeon General and communications with Congress;

(c) Defendants communicated with each other regarding research into the effects of nicotine and ways to suppress that information; and

(d) Defendants communicated with each other and the public regarding ways to identify and target the minors' market for the sale of cigarettes.

(ii) Chief Executive Officers or representatives of the Defendants made false and fraudulent statements under penalty of perjury in hearings before the House Subcommittee on Health and the Environment, convened on March 25, April 14, April 28, May 17, May 26, June 21 and June 23, 1994, and televised nationwide. Defendants' press releases also recounted Defendants' fraudulent statements. The witnesses affirmatively denied that Defendants manipulate the amount of nicotine contained in cigarettes; denied that using tobacco products causes cancer; and denied that there was any correlation between the amount of nicotine in nicotine tobacco products and the incidence of cancer.

(iii) On the nationally televised CBS program Face the Nation, air date March 27, 1994, Brenda Dawson, vice-president of the Tobacco Institute, stated before a live television and radio audience: "[A] ll six cigarette manufacturers in the United States do . . . not add nicotine" and "they don't manipulate nicotine. So Congress has been told form[ally] by every cigarette manufacturer in the United States that this claim is without foundation."

(iv) Obstruction of justice in the form of threatening and intimidating a witness in violation of 18 U.S.C. § 1512, and threatening to retaliate against a witness, in violation of 18 U.S.C. § 1513. Upon information and belief, Defendants have made threats against Jeffrey Wigand, former research chief of Brown & Williamson, to discourage him from providing testimony in connection with Mike Moore, Attorney General, ex rel. State of Mississippi v. The American Tobacco Co., No. 94-1429 (Ch. Ct. Jackson Co. Miss.), and in other litigation against the Tobacco Companies, and to retaliate against him for having served as a witness.

b. Engaging in interstate or foreign travel in aid of racketeering activities, in violation of 18 U.S.C. § 1952.

c. Engaging in myriad efforts to sell cigarettes and other tobacco products to minors in violation of various state laws.

d. Chief Executive officers or representatives of Defendants made false and fraudulent statements under penalty of perjury in hearings before the House Subcommittee on Health and the Environment, convened on March 25, April 14, May 17, May 26, June 21 and June 23, 1994.

261. These predicate acts form a "pattern" of racketeering activity. They have been related in their common objectives of: maximizing sales of tobacco products; misleading Congress, the public, government regulators and health care payers including the BC/BS Plans about the hazards of tobacco use and the addictive properties of nicotine; suppressing the truth concerning the addictive properties of nicotine and Defendants' manipulation of nicotine levels; soliciting minors and others to purchase cigarettes through false and misleading advertising; directing marketing and advertising toward minorities, teenagers and children so as to addict more cigarette buyers at an early age; devising means for manipulating and controlling nicotine levels of tobacco so as to addict minors and others; suppressing research and design and marketing of safer or less addictive cigarettes or alternative nicotine delivery products; and avoiding responsibility for the foreseeable costs of medical care for tobacco-related diseases that are now imposed on health care providers and payers such as the BC/BS Plans. These acts have had the same or similar purposes, results, participants, victims and methods of commission. The acts have been consistently repeated, are capable of further repetition and are being repeated.

262. Each Defendant conspired also to violate 18 U.S.C. § 1962(c), in violation of 18 U.S.C. § 1962(d). As detailed above, the conspiracy began in 1953, continues to the present and threatens to continue into the future. The object of the conspiracy was and is to protect the Tobacco Companies' business operations by conducting the affairs of the enterprise through a pattern of racketeering. Each Tobacco Company Defendant agreed to join the conspiracy, agreed to conduct the enterprise through a pattern of racketeering and agreed to the commission of and knowingly participated in at least two predicate acts within ten years of each other. Each Tobacco Company Defendant knew that those predicate acts were part of racketeering activity that would further the conspiracy.

263. The reason Defendants' violations of 18 U.S.C. §§ 1962 (c) and (d) have proximately caused direct injury to the business and property of the BC/BS Plans is because the BC/BS Plans have been required to incur significant, concrete financial costs and expenses attributable to tobacco-related diseases. The BC/BS Plans also have been unable to participate in a health care market where there would have been alternative safer or less addictive cigarettes that would have reduced costs and expenses related to tobacco-related diseases or to advise, suggest, promote, subsidize or require their members to choose to use effective alternative products such as safer cigarettes or less addictive cigarettes or other nicotine delivery devices. The BC/BS Plans were unable to reduce the costs of tobacco-related diseases suffered by their members because the BC/BS Plans and their members detrimentally relied on the false and fraudulent statements and information disseminated through an enterprise conducted by the Defendants through a pattern of racketeering activity. In absence of the Defendants' violation of 18 U.S.C. §§ 1962 (c) and (d), these costs and expenses would have been substantially reduced.

264. This injury does not take the form of personal injuries suffered by smokers, and it is not a derivative injury of the harm caused to smokers. It is separate economic injury directly to the business and property of the BC/BS Plans, which injury was intended by Defendants and is wholly distinct from the harms suffered by individuals. The BC/BS Plans suffered economic injury from the Defendants' violations of 18 U.S.C. §§ 1962 (c) and (d) because the BC/BS Plans were obligated to pay for substantially all of the health care costs of their members. No other person has standing to bring an action for the recovery of damages for this direct injury suffered by the BC/BS Plans as a result of Defendants' conduct.

265. The consumption of tobacco products by the members of the BC/BS Plans, and by consumers throughout the United States, was one of the objects of the Defendants' wrongful conduct, and those products were used by BC/BS Plan members precisely as Defendants intended. The injury thus inflicted on the BC/BS Plans by the Defendants was both foreseeable and intended, with the negative health effects Defendants knew were inevitable.

266. Another object of Defendants' wrongful conduct was the knowing and intentional avoidance and shifting of tobacco-related health care costs, including the costs of diagnosis and treatment, onto others, including the BC/BS Plans. Defendants knew that the development of illness and disease was an inevitable result of tobacco use. Defendants also knew and intended that providers of health care benefits and related services, including the BC/BS Plans, would incur substantial financial injury as a result of their conduct.

267. Under the provisions of 18 U.S.C. § 1964 (c), the BC/BS Plans are entitled to bring this action and to recover herein treble damages, the costs of bringing this suit and reasonable attorneys' fees.

COUNT 2

VIOLATION OF THE FEDERAL RACKETEER

INFLUENCED and CORRUPT ORGANIZATIONS ACT

(18 U.S.C. §§ 1962 (a) and (d))

[Against All Defendants]

268. The BC/BS Plans restate and incorporate herein paragraphs 1 through 267 of this Complaint.

269. This claim for relief is asserted against each Defendant and arises under 18 U.S.C. §§ 1962(a) and (d) of RICO, which provide:

(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity . . . to use or invest, directly or indirectly any part of such income, or the proceeds of such income, in acquisition of any interest in, or the establishment or operation of, any enterprise which is engaged in, or the activities of which affect, interstate or foreign commerce. . . .

(d) It shall be unlawful for any person to conspire to violate any of the provisions of subsection (a) . . . of this section.

270. At all relevant times, each Defendant was a "person" within the meaning of 18 U.S.C. 1961(3), as each Defendant was "capable of holding a legal or beneficial interest in property."

271. At all relevant times, the Tobacco Institute, CTR (formerly TIRC) and STRC have constituted an enterprise within the meaning of 18 U.S.C. § 1961(4) or, in the alternative, each Defendant has constituted an enterprise within the meaning of 18 U.S.C. § 1961(4). Each enterprise is an ongoing organization. Each enterprise and its activities affect interstate commerce in that the enterprise is engaged in the business of maximizing the sales of cigarettes and other nicotine products.

272. As alleged above, Defendants have engaged in a pattern of racketeering activity that dates from 1953 through the present and threatens to continue into the future. These racketeering acts generated income for Defendants because they contributed to: the suppression and concealment of scientific and medical information regarding the health effects of nicotine products; the suppression of a market for alternative safer or less addictive tobacco products; the manipulation of nicotine to create and sustain addiction to Defendants' products; the targeting of teenagers and children and minorities with marketing and advertising designed to addict them, all to protect and ensure continued sales of Defendants' unsafe and addictive tobacco products; and the avoidance and shifting of smoking related health care costs to others including the BC/BS Plans by the methods stated above, including illicit litigation tactics such as unfounded claims of attorney-client privilege and other means.

273. Defendants have used or invested their illicit proceeds, generated through the pattern of racketeering activity, directly or indirectly in the acquisition of an interest in, or in the establishment or operation of each enterprise, in violation of 18 U.S.C. § 1962(a). Defendants' use and investment of these illicit proceeds in each enterprise is for the specific purpose and has the effect of controlling the material information distributed to the public concerning the health effects of smoking; suppressing and concealing scientific and medical information regarding the adverse health effects of smoking and the alternatives of safer or less-addictive cigarettes; devising means for manipulating nicotine to create and sustain addiction to Defendants' products; directing marketing and advertising toward minorities, teenagers and children to addict them; and enticing more individuals to smoke or to use Defendants' unsafe nicotine tobacco products.

274. Each Defendant also conspired to violate 18 U.S.C. § 1962(a), in violation of 18 U.S.C. § 1962(d). As detailed above, the conspiracy began in 1953, continues to the present and threatens to continue into the future. The object of the conspiracy was and is to protect the Tobacco Companies' business operations by investing their illicit proceeds, generated through a pattern of racketeering activity, in each enterprise. Each Defendant agreed to join the conspiracy, agreed to invest racketeering-generated proceeds in each enterprise in order to continue enterprise operations and agreed to the commission of and knowingly participated in at least two predicate acts within ten years of each other. Each Defendant knew that those predicate acts were part of racketeering activity that would further the conspiracy.

275. Defendants' violations of 18 U.S.C. §§ 1962 (a) and (d) have proximately caused direct injury to the business and property of the BC/BS Plans because the BC/BS Plans have been required to incur significant, concrete financial costs and expenses attributable to tobacco-related diseases; have been unable to participate in a market for alternative less harmful or less addictive nicotine products, or to advise, suggest, promote, subsidize or require their members to use alternative products such as safer or less addictive tobacco products or other nicotine delivery devices; and have not been as effective as they would otherwise have been in helping their members not to use hazardous tobacco products. In absence of the Defendants' violation of 18 U.S.C. §§ 1962 (a) and (d), these costs and expenses would have been substantially reduced.

276. This injury is not a form of compensation for personal injuries suffered by smokers, and it is not a derivative injury of the harm caused to smokers. It is separate economic injury directly to the business and property of the BC/BS Plans, and is wholly distinct from the harms suffered by individuals. The BC/BS Plans suffered this economic injury from the Defendants' violations of 18 U.S.C. §§ 1962 (a) and (d) because the BC/BS Plans were obligated to pay for substantially all of the health care costs of the Plans' members. No other person has standing to bring an action for the recovery of damages for this direct injury caused by the Defendants' actions. The consumption of tobacco products by the members in the BC/BS Plans, and by consumers throughout the United States, was one of the objects of the Defendants' wrongful conduct, and those products were used by BC/BS Plan members precisely as Defendants intended, with the negative health effects Defendants knew were inevitable. The injury thus inflicted on the BC/BS Plans by the Defendants was both foreseeable and intended.

277. Another object of Defendants' wrongful conduct was the knowing and intentional avoidance and shifting of tobacco-related health care costs, including the costs of diagnosis and treatment, onto others, including the BC/BS Plans. Defendants knew that the development of illness and disease was an inevitable result of tobacco use. Defendants also knew that payers for health care benefits and related services, including the BC/BS Plans, would incur substantial financial injury as a result of their conduct.

278. The BC/BS Plans have been directly injured in their business and property by reason of Defendants' violations of 18 U.S.C. §§ 1962(a) and (d) in that they have been required to incur significant costs and expenses attributable to tobacco-related illnesses and diseases. Under the provisions of 18 U.S.C. § 1964(c), the BC/BS Plans are entitled to bring this action and to recover three times the amount of damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

279. Defendants' unlawful conduct will continue unless the relief prayed for in this Complaint is granted.

COUNT 3

VIOLATION OF THE SHERMAN ACT, 15 U.S.C. § 1

[Against All Defendants]

280. The BC/BS Plans restate and incorporate herein paragraphs 1 through 253 of this Complaint.

281. Since the early 1950s, and continuing until the present date, the Defendant Tobacco Companies, aided and abetted by the other Defendants herein, have violated Section 1 of the Sherman Act, 15 U.S.C. § 1, by entering into, adhering to and continuing to observe the terms of a combination or conspiracy in unreasonable restraint of trade and commerce in the market for cigarettes in the United States. Such illegal concerted action has eliminated commercial competition that would have existed but for the conspiracy. Specifically, Defendants have conspired: (1) to suppress innovation and competition in product quality by agreeing not to engage in research, development, manufacture and marketing of less harmful cigarettes and other nicotine products; (2) to suppress output in a market, and to engage in concerted refusal to deal, by agreeing to keep at zero the output of less harmful cigarettes and other nicotine products; and (3) to suppress competition in marketing by agreeing not to take business from one another by making claims as to the relative safety of particular brands, whether or not such claims would have been truthful. But for the conspiracy, competition in the market for cigarettes in the United States would have been far more vigorous, and consumers and others would have reaped enormous benefits.

282. But for the conspiracy, one or more of the Tobacco Companies would have developed a commercially successful, less harmful cigarette; such a cigarette would have garnered a substantial share of the cigarette market; and those who used that product rather than conventional cigarettes would have had significantly fewer health problems. As a consequence of the above, the BC/BS Plans would have incurred substantially lower costs.

283. A relevant market in which Defendants' violations occurred is the manufacture and sale of cigarettes and other nicotine products in the United States. Because, inter alia, such products are physically addictive, they are not reasonably interchangeable with other consumer products, nor are they characterized by cross-elasticity of price with other consumer products. Within this broad relevant market there would have existed, but for Defendants' conspiracy, a relevant submarket for the manufacture and sale in the United States of less harmful cigarettes and other nicotine products which would still have delivered nicotine but which would have had materially less deleterious health effects than the products actually manufactured and sold by Defendants. Such products would have proven attractive to many smokers, who would have chosen to buy them if they had been available.

284. Because Defendants have conspired to suppress output of less harmful cigarettes and other nicotine products, and to refuse to deal in such products, their conduct is unreasonable per se under the Section 1 of the Sherman Act. There is, moreover, no colorable justification for the concerted action alleged herein, which is unrelated to any lawful business transaction, does not promote efficiency, does not advance the interests of consumers and does not promote interbrand or intrabrand competition.

285. Antitrust law protects competition over innovation and product quality just as it protects price competition. Defendants willfully violated antitrust law by agreeing to suppress competition related to the safety of their products. It was clearly foreseeable that this antitrust violation would injure smokers' health, and it was just as foreseeable that the violation would, at the same time, cause those financially responsible for smokers' health care to suffer an injury in their business or property, by paying increased costs and expenses for health care services and products. These two kinds of injury are inextricably intertwined. Each flows directly from the anticompetitive effects of the illegal conduct. The harm suffered by the BC/BS Plans is the precise type of harm that a conspiracy to suppress competition related to product safety would be likely to cause. Accordingly, this harm reflects the anticompetitive effects of the violation.

286. The BC/BS Plans are the efficient and natural parties to redress this antitrust violation. Moreover, the interests of the BC/BS Plans are aligned with those of consumers and with the public interest in increased competition and vigorous antitrust enforcement.

287. The damages claimed by the BC/BS Plans are not duplicative of damages that are asserted, or could be asserted, by any other persons, including those of the BC/BS Plans' members who have been injured by Defendants' unlawful conduct. Accordingly, awarding damages to the BC/BS Plans will not risk duplicative recovery, nor will determining the amount of such damages require apportionment of damages as between the BC/BS Plans and others. Moreover, because others cannot sue to recover these damages, allowing the Tobacco Companies to avoid the consequences of their illegal conduct would risk letting a major antitrust violation go unremedied.

288. As a direct and proximate result of the combination or conspiracy, the BC/BS Plans were injured in their business or property by reason of Defendants' conspiracy in the market for cigarettes or other nicotine products, including the suppression of a relevant submarket for safer cigarettes or other nicotine delivery devices that would have existed but for the Defendants' unlawful conduct.

289. Pursuant to 15 U.S.C. § 15, the BC/BS Plans are entitled to recover three times the actual damages they have sustained, and will in the future sustain, by reason of Defendants' violation of the Sherman Act, together with the costs of bringing this suit and reasonable attorneys' fees. Such damages run into the billions of dollars.

290. Pursuant to 15 U.S.C. § 26, the BC/BS Plans are also entitled to injunctive relief requiring Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

COUNT 4

VIOLATION OF THE SHERMAN ACT, 15 U.S.C. § 1

[Against All Defendants]

291. The BC/BS Plans restate and incorporate herein paragraphs 1 through 253 and paragraphs 280 through 298 of this Complaint.

292. The Tobacco Company Defendants are, among other things, in the business of selling nicotine, an addictive substance that is a drug, both commercially and within the meaning of 61 Fed. Reg. 44.396, 44.397 (1996), as recognized by the medical profession and by the United States Food and Drug Administration. Cigarettes are a combination product within 61 Fed. Reg. 44.396, 44.397 (1996) consisting of the drug nicotine and medical device components that deliver nicotine to the body. Accordingly, the Tobacco Company Defendants participate as sellers in the broad United States market for drugs.

293. But for the conspiracy alleged herein, a new relevant submarket for less harmful cigarettes or other nicotine products would have become available to consumers. Such products would likewise have been drugs, and as such, would have formed part of the broad market for drugs.

294. The BC/BS Plans are customers in the broad market for drugs, in that they pay for drugs for the benefit of their members.

295. The BC/BS plans are purchasers of drugs, products and services used in treatment of nicotine addiction and dependence. The BC/BS Plans are potential customers in the market for less harmful cigarettes or other nicotine products, in which the Tobacco Companies conspired to suppress competition.

296. Had one been available, a less harmful cigarette or other nicotine delivery devices would have been a useful and necessary product for use in the treatment by health care providers of persons for nicotine dependence and addiction. Had such a product been available, the BC/BS Plans would have had the opportunity to purchase it from Defendants for use in the treatment by health care providers of persons suffering from nicotine addiction.

297. As a direct and proximate result of the combination or conspiracy, the BC/BS Plans were injured in their business or property as a customer in the broad market for drugs, and a potential customer for safer cigarettes or other nicotine products.

298. Pursuant to 15 U.S.C. § 15, the BC/BS Plans are entitled to recover three times the actual damages they have sustained, and will in the future sustain, by reason of Defendants' violation of the Sherman Act, together with the costs of bringing this suit and reasonable attorneys' fees. Such damages run into the billions of dollars.

299. Pursuant to 15 U.S.C. § 26, the BC/BS Plans are also entitled to injunctive relief requiring Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

COUNT 5

FRAUDULENT MISREPRESENTATION

[Against All Defendants]

300. The BC/BS Plans restate and incorporate herein paragraphs 1 through 253 of this Complaint.

301. Defendants represented and promised to those who advance and protect the public health and provide or pay for health care and health care services that they would discover and disclose all material facts about the effects of cigarette smoking and other tobacco product use on human health, including addiction.

302. Defendants have made and continue to make representations, statements and promises about the safety of cigarettes, other tobacco products and nicotine in general and their effect on human health and addiction. Such representations, statements and promises were and remain materially false, incomplete and fraudulent at the time Defendants made them, and Defendants knew or had and continue to have reason to know of their falsity. Only Defendant Liggett has recently conceded that the nicotine in cigarettes is addictive; Liggett made this admission for the first time only in March 1997.

303. In testimony before Congress in January 1998, executives of other Tobacco Companies tried to have it both ways concerning the question of addiction. They stated that they personally did not think nicotine was addictive, but conceded that under some definitions, it would be considered addictive.

304. In view of the documentary record establishing that the Tobacco Companies have known for years with certainty that nicotine is addictive, such testimony is dishonest and part of an on-going attempt to disseminate false and misleading information.

305. At all relevant times Defendants intentionally, willfully or recklessly misrepresented material facts about the human health hazards of tobacco use, including addiction, and the association of cigarette smoking and other tobacco product use with various diseases of the heart, lung and other vital organs.

306. Because of Defendants' secret internal research, Defendants' knowledge of the material facts about tobacco use, health and addiction was and is superior to the knowledge of the BC/BS Plans' members who purchased, used and consumed the Tobacco Companies' cigarettes and other nicotine tobacco products. Defendants' knowledge of the material facts about tobacco use, health and addiction was and is also superior to that of the BC/BS Plans, which undertook to provide health care financing for their members. Public access to these facts is limited because such facts are exclusively within Defendants' control.

307. By expressly raising the issue of smoking, health and addiction and making partial and incomplete statements to the public about these issues, Defendants had a duty to reveal all material facts of which they had notice or actual knowledge, in order not to deceive and mislead the BC/BS Plans and their members. Defendants' disclosure of fragmentary information and half-truths constitutes material and actionable misrepresentation.

308. Defendants also purposefully placed themselves in a unique relationship to the BC/BS Plans and their members by expressly telling the public to place special trust and confidence in Defendants' promises to discover and disclose all material facts about tobacco use, health and addiction. The BC/BS Plans, which were and are responsible for providing health plan benefits and related services to their members, were in a vastly inferior position to discover truthful information about cigarettes and other tobacco products. Defendants voluntarily undertook the responsibility to discover and disclose the truth about cigarettes and other tobacco products and did so for the purpose of cultivating the trust and confidence of their consumers and of the BC/BS Plans so as to induce the BC/BS Plans and their members to rely on Defendants' promises.

309. The BC/BS Plans, which bear responsibility for providing health plan benefits to their members, reasonably and justifiably relied on Defendants' material misrepresentations. The BC/BS Plans lacked complete information regarding the effects of tobacco use on health, the relationship between nicotine and addiction and the manipulation of levels of nicotine delivery to ensure addiction. As a result, the BC/BS Plans justifiably relied on false or incomplete information in taking or not taking actions to discourage and reduce tobacco use by the BC/BS Plans' members.

310. Defendants are aware of the dependency of the BC/BS Plans and the general public on receiving complete information from government agencies concerning health risks, and have exploited this dependency to their advantage and to the detriment of the BC/BS Plans.

311. Defendants sought to induce the BC/BS Plans' reliance on Defendants' representations and promises to disclose the truth about cigarettes and other tobacco products, knowing that the BC/BS Plans and their members were in a vastly inferior position to discover the truth about cigarettes and nicotine products.

312. Defendants engaged in this fraudulent course of conduct for the purpose of influencing the market and reaping huge profits, despite Defendants' duty to disclose all material information about the known defects in their products and the hazards of using them. Defendants' fraudulent statements and conduct, including their effect upon the market for tobacco products, was a substantial cause of persuading the BC/BS Plans' members to purchase and use deadly and addictive products. Defendants also sought to fraudulently shield themselves from having to pay the health care costs of tobacco-related diseases, which they knew would be incurred and be extremely high, and to shift those costs to others, including the BC/BS Plans.

313. The BC/BS Plans reasonably and justifiably relied on Defendants' materially false, incomplete and misleading representations about tobacco use, health and addiction. As a result of such reliance, the BC/BS Plans did not take, or would have taken sooner, actions to minimize the losses resulting from tobacco-related injuries and diseases and to discourage and reduce cigarette and other nicotine product use and the costs associated therewith by the BC/BS Plans' members.

314. As a direct, foreseeable and proximate result of the foregoing conduct of Defendants, the BC/BS Plans have suffered damages through payments for the costs of medical care due to smoking.

315. As direct and proximate result of Defendants' fraudulent misrepresen-tations and nondisclosures, the BC/BS Plans have suffered and will continue to suffer substantial injuries and damages for which the BC/BS Plans are entitled to recovery, and for which Defendants are jointly and severally liable.

COUNT 6

FRAUDULENT CONCEALMENT

[Against All Defendants]

316. The BC/BS Plans restate and incorporate herein paragraphs 1 through 253 of this Complaint.

317. Defendants represented and promised to those who advance and protect the public health and provide or pay for health care and health care services that they would discover and disclose all material facts about the effects of cigarette smoking and other tobacco product use on human health, including addiction.

318. At all relevant times, however, Defendants intentionally, willfully or recklessly failed to disclose and/or concealed material facts about the human health hazards of tobacco use, including addiction, and the association of cigarette smoking and other tobacco product use with various diseases of the heart, lung and other vital organs.

319. By expressly and publicly raising the issue of smoking, health and addiction and making partial and incomplete statements about these issues, while actively concealing other material information, Defendants had a duty to reveal all material facts of which they had notice or actual knowledge, in order not to deceive or mislead the BC/BS Plans and their members. Defendants' concealment of such material information concerning smoking, health and addiction constitutes material and actionable concealment.

320. The BC/BS Plans, which bear responsibility for providing health plan benefits to their members, reasonably and justifiably relied on Defendants' material non-disclosures. The BC/BS Plans thus lacked complete information regarding the effects of tobacco use on health, the relationship between nicotine and addiction and the manipulation of levels of nicotine delivery to ensure addiction. As a result, the BC/BS Plans justifiably relied on materially incomplete information in taking or not taking actions to discourage and reduce tobacco use by the BC/BS Plans' members.

321. Defendants engaged in this course of active concealment for the purpose of influencing the market and reaping huge profits, despite Defendants' duty to disclose all material information about the known defects in their products and the hazards of using them. Defendants' fraudulent concealment was a substantial cause of persuading the BC/BS Plans' members to purchase and use deadly and addictive products. Defendants also sought to fraudulently shield themselves from having to pay the health care costs of tobacco-related diseases, which they knew would be incurred and be extremely high, and to shift those costs to others, including the BC/BS Plans.

322. The facts concealed by Defendants about tobacco use, health and addiction were material in that a reasonable consumer would have considered them important in deciding whether to purchase and smoke cigarettes. The facts concealed by Defendants about tobacco use, health and addiction were material in that a reasonable provider of health plan benefits or payer for health care costs would have considered them important in deciding how to best provide and pay for health care.

323. The BC/BS Plans reasonably and justifiably relied on Defendants' nondisclosures of material facts about cigarette smoking, use of other tobacco products and health. As a result of such reliance, the BC/BS Plans failed to take, or would have taken sooner, actions to minimize the losses resulting from tobacco-related injuries and diseases and to discourage and reduce cigarette and other tobacco product use and the costs associated therewith by the BC/BS Plans' members.

324. The BC/BS Plans' members, also relied on Defendants' nondisclosure of material facts about tobacco use and health, and were thereby induced to purchase, smoke or chew and become addicted to Defendants' deadly and defective products, to the detriment of the BC/BS Plans which paid for the health care and treatment of the tobacco-related illnesses caused by such products.

325. As a direct, foreseeable and proximate result of the foregoing fraudulent conduct of Defendants, the BC/BS Plans have suffered damages through payments for medical care due to smoking and other tobacco use.

326. As a direct and proximate result of Defendants' active concealment, the BC/BS Plans have suffered and will continue to suffer substantial injuries and damages for which the BC/BS Plans are entitled to recovery, and for which Defendants are jointly and severally liable.

COUNT 7

BREACH OF SPECIAL DUTY

[Against All Defendants]

327. The BC/BS Plans restate and incorporate herein the paragraphs 1 through 253 of this Complaint.

328. Beginning as early as 1954 with the publication of "A Frank Statement to Cigarette Smokers" and continuing to the present, Defendants voluntarily assumed a special duty to protect the public health and a duty to those who advance the public health by paying health care claims and providing related services, including the BC/BS Plans. Defendants promised and undertook to accept paramount responsibility for informing the public about health issues connected with their products, thus encouraging others to repose trust and confidence in them.

329. Defendants publicly represented that they were undertaking to act on behalf of the public's health; to aid and assist the research effort into all phases of tobacco use and health; to continue research and all possible efforts until all the facts were known; and to provide complete and objective information about all phases of cigarette smoking and health. Defendants thereby undertook a special duty to the general public, cigarette smokers, the BC/BS Plans' members and the BC/BS Plans themselves.

330. The BC/BS Plans reasonably and justifiably relied on Defendants' materially false, incomplete and misleading representations about tobacco use, health and addiction, Defendants' failure to reveal the possibility of safer, alternative nicotine products and Defendants' nondisclosure of material facts about tobacco use and human health. As a result of such reliance, the BC/BS Plans failed to take or would have taken sooner actions to minimize the losses resulting from tobacco-related injuries and diseases and to discourage and reduce cigarette and other tobacco product use, and the costs associated therewith, by the BC/BS Plans' members.

331. Defendants' conduct as described herein is an intentional and/or negligent breach of Defendants' publicly announced special duty, special relationship or promise. Defendants failed to exercise reasonable care in the performance of their duty. Defendants not only did not carry out their duties and promises, but knowingly suppressed information about the adverse health effects of nicotine tobacco products; the addictive nature of those products; the possibility of an alternative, safer cigarette or alternative nicotine delivery product; and other information that would have assisted any effort to advance the public's health as it relates to nicotine tobacco use. Defendants knew and intended that their failure to fulfill their duty and promises would result in a detrimental impact on health payers such as the BC/BS Plans, as well as on the needs of the BC/BS Plans' members and the general public. As a direct and proximate result of Defendants' wrongful violation of their special duty and promises, the BC/BS Plans have had to pay for the care and treatment of nicotine-related disease, illness and addiction which has caused the BC/BS Plans to suffer damages and injuries, including the expenses of medical care for nicotine-related diseases and illnesses and the treatment of nicotine addiction.

332. Defendants' continuing conduct is an ongoing and intentional breach of the special duty they undertook and owed to, among others, the BC/BS Plans. Defendants knowingly suppressed information that would have assisted any effort to advance the public's health as it relates to tobacco. This breach has resulted in a detrimental impact on BC/BS Plans' members, the BC/BS Plans and the general public.

333. As a direct and proximate cause of Defendants' breach, the BC/BS Plans have suffered and will continue to suffer substantial injuries and damages, primarily in the form of increased costs for health care services and treatment occasioned by tobacco-related illness, for which the BC/BS Plans are entitled to recover and for which Defendants are jointly and severally liable.

COUNT 8

UNJUST ENRICHMENT

[Against All Defendants]

334. The BC/BS Plans restate and incorporate herein paragraphs 1 through 253 of the Complaint.

335. Defendants owe and continue to owe a duty to the public, including the BC/BS Plans and their members, not to deceive them regarding the dangers of smoking. Beginning with Defendants' "Frank Statement," Defendants assumed and continue to owe a duty to the BC/BS Plans and their members, to research the dangers of smoking and to disclose the results.

336. Defendants, through the deceptive practices and the breaches of duty described in this Complaint, have induced many of the BC/BS Plans' members to purchase the Tobacco Companies' cigarettes and other tobacco products and as a consequence to suffer diseases and illnesses related to the use of the Tobacco Companies' products.

337. The BC/BS Plans have paid, and continue to pay for, health care benefits incurred by their members for the diagnosis and treatment of diseases and illnesses related to the use of the Tobacco Companies' tobacco products.

338. Because the BC/BS Plans have expended sums which Defendants had, and continue to have a duty to pay, but have avoided paying by deceit, mendacious lobbying efforts, propaganda, scorched-earth and illicit and deceptive litigation tactics and other means, the BC/BS Plans have conferred a benefit upon Defendants.

339. Inasmuch as Defendants caused the health care expenses to be incurred through the use of fraudulent and unlawful means and breaches of special and assumed duty as described in this Complaint, and avoided paying such expenses by illicit means, Defendants' retention of the benefit so conferred upon them by the BC/BS Plans would be unjust.

340. In equity and good conscience, Defendants should be ordered to pay restitution to the BC/BS Plans those sums expended, and to be expended in the future, by the BC/BS Plans to cover the health care costs and related services incurred by their members as a result of Defendants' conduct.

COUNT 9

CONSPIRACY

[Against All Defendants]

341. The BC/BS Plans restate and incorporate herein paragraphs 1 through 253 of this Complaint.

342. Defendants entered into an unlawful conspiracy to engage in all of the wrongful and unlawful conduct described herein, including: (a) suppressing information concerning the adverse effects of smoking and the addictive effect of nicotine; (b) creating doubt about scientific studies that showed the addictive nature of nicotine and linking smoking to adverse health consequences and about warnings relating thereto; (c) concealing their manipulation of the level of nicotine in tobacco products; (d) avoiding competition by agreeing not to produce safer products as substitutes for their nicotine tobacco products; and (e) misrepresenting their intentions, knowledge, goals and purposes to the Congress of the United States, state legislatures, relevant regulatory authorities, the public and to persons in the health field, including the BC/BS Plans.

343. The intended purposes of this conspiracy were to deceive the citizens of the United States, including the BC/BS Plans and their members as to the true nature of Defendants' products; to restrain the development of a market for a safer or alternative product; to prevent smokers and users of tobacco products from abandoning Defendants' products; and to shift nicotine-related health care costs to the BC/BS Plans and other health care payers. As a proximate result of this unlawful conspiracy the BC/BS Plans have been injured in their business and property and have been required to pay increased health care costs associated with tobacco-related illnesses and diseases.

344. Defendants' unlawful conduct will continue unless the relief prayed for in this Complaint is granted.

CLAIMS FOR RELIEF BY INDIVIDUAL PLAINTIFF BC/BS PLANS

CALIFORNIA

COUNT 10

California Unfair Competition Law

(Cal. Bus. & Prof. Code § 17203)

[Against All Defendants]

345. Blue Shield-California restates and incorporates herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

346. California's Unfair Competition Law, Cal. Bus. & Prof. Code §§ 17203 and 17200 states, in pertinent part:

Any person who engages, has engaged, or proposes to engage in unfair competition may be enjoined in any court of competent jurisdiction....

* * *

[U]nfair competition shall mean and include any unlawful, unfair or fraudulent business act or practice and unfair, deceptive, untrue or misleading advertising….

347. The conduct described above and throughout this Complaint constitutes deceptive and unfair methods of competition, all impacting the public interest, in violation of Cal. Bus. & Prof. Code § 17203.

348. As a direct and proximate result of such wrongful activity, Blue Shield-California has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes and other tobacco products.

349. Blue Shield-California is acting for the interests of itself, its members or the general public and is a "person" within the meaning of, and is entitled to bring this action, under Cal. Bus. & Prof. Code § 17204.

350. Pursuant to Cal. Bus. & Prof. Code § 17203, Blue Shield-California is entitled to (1) an order enjoining Defendants' use or employment of any practice which constitutes unfair competition; (2) restitution, including Defendants' disgorgement of their illicitly earned profits; and (3) the costs of bringing this suit and reasonable attorneys' fees.

COUNT 11

California False Advertising Law

(Cal. Bus. & Prof. Code § 17500)

[Against All Defendants]

351. Blue Shield-California restates and incorporates herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

352. California's False Advertising Law, Cal. Bus. & Prof. Code § 17500, states, in pertinent part:

It is unlawful for any person, firm, corporation or association ... with intent directly or indirectly to dispose of real or personal property ... to make or disseminate or cause to be made or disseminated before the public in this state ... in any newspaper or other publication, or any advertising device ... or in any manner or means whatever, any statement, concerning such real or personal property ... which is untrue or misleading, … or corporation to so make or disseminate or cause to be so made or disseminated any such statement as part of a plan or scheme with the intent not to sell such personal property ... as so advertised. . . .

353. The conduct described above and throughout this Complaint constitutes false advertising, all impacting the public interest, in violation of Cal. Bus. & Prof. Code § 17500.

354. As a direct and proximate result of such wrongful activity, Blue Shield-California has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes and other tobacco products.

355. Blue Shield-California is a "person" entitled to bring this action within the meaning of Cal. Bus. & Prof. Code § 17535.

356. Pursuant to Cal. Bus. & Prof. Code § 17535, Blue Shield-California is entitled to (1) an order enjoining Defendants' use or employment of false and deceptive advertising; (2) restitution, including Defendants' disgorgement of their illicitly earned profits; and (3) the costs of bringing this suit and reasonable attorneys' fees.

COUNT 12

California Cartwright Act

(Cal. Bus. & Prof. Code § 16720)

[Against All Defendants]

357. Blue Shield-California restates and incorporates herein paragraphs 1 through 253 and paragraphs 280 through 299 of this Complaint.

358. California's Cartwright Act, Cal. Bus. & Prof. Code § 16720 states, in pertinent part:

A trust is a combination of capital, skill or acts by two or more persons for any of the following purposes:

(a) To create or carry out restrictions in trade or commerce.

(c) To prevent competition in manufacturing, making, transportation, sale or purchase of merchandise, produce or any commodity.

359. Cal. Bus. & Prof. Code § 16726 states, in pertinent part:

[E]very trust is unlawful, against public policy and void.

360. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants have entered into a combination or conspiracy in restraint of trade or commerce in the market for cigarettes or other nicotine tobacco products in the United States, including the State of California, in willful and/or flagrant violation of Cal. Bus. & Prof. Code § 16720, California's analog to Sherman Act § 1.

361. As a direct and proximate result of the combination or conspiracy alleged in Counts Three and Four above, Blue Shield-California was injured in its business or property (1) by reason of Defendants' conspiracy in the market for cigarettes or other nicotine tobacco products, including the suppression of a relevant submarket for safer cigarettes that would have existed but for the Defendants' unlawful conduct and/or (2) as a customer in the broad market for drugs, and a potential customer in the relevant submarket for safer cigarettes or other nicotine products.

362. Pursuant to Cal. Bus. & Prof. Code § 16750(a), Blue Shield-California is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

363. Blue Shield-California is also entitled to injunctive relief directing Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

DISTRICT OF COLUMBIA

COUNT 13

District of Columbia Consumer Protection Act

(D.C. Code § 28-3904)

[Against All Defendants]

364. BC/BS NCA restates and incorporates herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

365. The District of Columbia's Consumer Protection Act, D.C. Code § 28-3904, states, in pertinent part:

It shall be a violation of this chapter, whether or not any consumer is in fact misled, deceived or damaged thereby, for any person to:

(a) represent that good or services have a source, sponsorship, approval, certification, accessories, characteristics, ingredients, uses, benefits, or guaranties that they do not have;

(d) represent that goods or services are of a particular standard, quality, grade, style or model, if in fact they are of another;

(e) misrepresent as to a material fact if such failure tends to mislead;

(h) advertise or offer goods or services without the intent to sell them or without the intent to sell them as advertised or offered [.]

366. BC/BS NCA has suffered and continues to suffer damages as a result of Defendants' use or employment of unlawful trade practices and is a "consumer" within the meaning of, and is entitled to bring this action, under D.C. Code § 28-3905.

367. The conduct described above and throughout this Complaint constitutes deceptive and unfair methods of competition and/or trade practices, all impacting the public interest, in violation of D.C. Code § 28-3904.

368. As a direct and proximate result of such wrongful activity, BC/BS NCA has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes or other tobacco products.

369. Pursuant to D.C. Code § 28-3905, BC/BS NCA is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

COUNT 14

District of Columbia Restraints of Trade Act

(D.C. Code § 28-4502)

[Against All Defendants]

370. BC/BS NCA repeats and incorporates herein paragraphs 1 through 253 and paragraphs 280 through 299 of this Complaint.

371. The District of Columbia Restraints of Trade Act, D.C. Code § 28-4502, states, in pertinent part:

Every contract, confirmation in the form of a trust or otherwise, or conspiracy in restraint of trade or commerce, all or any part of which is within the District of Columbia is declared to be illegal.

372. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants have entered into a combination or conspiracy in restraint of trade or commerce in the market for cigarettes or other nicotine products in the United States, including the District of Columbia, in willful and/or flagrant violation of D.C. Code § 28-4502, the District of Columbia's analog to Sherman Act § 1.

373. As a direct and proximate result of the combination or conspiracy alleged in Counts Three and Four above, BC/BS NCA was injured in its business or property (1) by reason of Defendants' conspiracy in the market for cigarettes or other nicotine products, including the suppression of a relevant submarket for safer cigarettes or other nicotine products that would have existed but for the Defendants' unlawful conduct and/or (2) as a customer in the broad market for drugs, and a potential customer in the relevant submarket for safer cigarettes and other nicotine products.

374. Pursuant to D.C. Code § 28-4508, BC/BS NCA is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

375. BC/BS NCA is also entitled to injunctive relief directing Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

FLORIDA

COUNT 15

Florida Deceptive and Unfair Trade Practices Act

(Fla. Stat. §§ 501.204)

[Against All Defendants]

376. BC/BS Florida restates and incorporates herein paragraphs 1 through 253 of this Complaint.

377. Florida's Deceptive and Unfair Trade Practices Act, Fla. Stat. § 501.204, states, in pertinent part:

Unfair methods of competition, unconscionable acts or practices, and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.

378. In the conduct of trade or commerce, Defendants have engaged and do engage in unfair methods of competition, unconscionable acts or practices and unfair or deceptive acts or practices including but not limited to the following:

a. Intentionally, willfully and knowingly seeking to addict persons, including BC/BS Florida members and their children, to the use of hazardous cigarettes and other nicotine tobacco products, knowing that such addiction physically changes and damages smokers' brain structures and creates and constitutes a substantial unfair impediment or interference in the smokers' ability to choose whether to continue smoking, making the transaction no longer an arm's length one between an equally willing buyer and seller, which is similar to many other deceptive and/or unfair devices and practices that affect bargaining power or relative information;

b. Targeting people with deceptive advertising by misrepresenting the characteristics, ingredients, uses, or benefits of Defendants' tobacco products; and

c. Engaging for decades in a wide variety of misrepresentations and fraudulent concealment of material facts, directly or by implication, including but not limited to: (1) misrepresentations and fraudulent concealment of the addictive nature of nicotine and of the adverse health consequences of nicotine tobacco products; (2) misrepresentations and fraudulent concealment about Defendants' ability to manipulate and their practice of manipulating nicotine levels and the addictive qualities of nicotine tobacco products; (3) misrepresentations that the Defendants would provide the public and governmental authorities with objective, scientific information regarding cigarettes and other tobacco products; (4) fraudulent concealment of certain aspects of cigarettes and other tobacco products, including the availability of safer, less-addictive products as a substitute to cigarettes and other tobacco products; (5) causing a likelihood of confusion about the source, sponsorship, approval or certification of cigarettes and other tobacco products; (6) misrepresenting that nicotine tobacco products have sponsorship, approval, characteristics, ingredients or benefits that they do not have and that Defendants knew that they did not have; (7) misrepresenting that cigarettes and other tobacco products were of a particular quality or grade, when Defendants knew that they were not; (8) engaging in unconscionable trade practices; (9) fraudulently promoting filter and low-tar cigarettes as safer; (10) fraudulently manipulating scientific research into the health hazards of smoking; and (11) fraudulently creating their "research councils" and using them to spread false information about their products and to promote false information that cigarettes or other tobacco products were safe or that adverse heath effects had not been established.

379. The conduct described above and throughout this Complaint constitutes deceptive and unfair methods of competition, unconscionable acts or practices and unfair or deceptive acts or practices all impacting the public interest, in violation of Fla. Stat. § 501.204.

380. As a direct and proximate result of such wrongful activity, BC/BS Florida has suffered losses and will continue to suffer substantial losses and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes and other tobacco products.

381. BC/BS Florida is aggrieved by violations of Fla. Stat. § 501.204 and is a "person" and a "consumer" within the meaning of, and is entitled to bring this action, under Fla. Stat. § 501.203(7).

382. Pursuant to Fla. Stat. § 501.211, BC/BS Florida is entitled to recover the actual damages it sustained, the costs of bringing this suit and reasonable attorneys' fees.

COUNT 16

Florida Antitrust Act

(Fla. Stat. § 542.18)

[Against All Defendants]

383. BC/BS Florida restates and incorporates herein paragraphs 1 through 253 and paragraphs 280 through 299 of this Complaint.

384. Florida's Antitrust Act, Fla. Stat. § 542.18 states, in pertinent part:

Every contract, combination, or conspiracy in restraint of trade or commerce in this state is unlawful.

385. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants have entered into a combination or conspiracy in restraint of trade or commerce in the market for cigarettes or other nicotine products in the United States, including the State of Florida, in violation of Fla. Stat. § 542.18, Florida's analog to Sherman Act § 1.

386. As a direct and proximate result of this agreement, combination or conspiracy, BC/BS Florida was directly injured in its business or property by, among other things (1) by reason of Defendants' conspiracy in the market for cigarettes or other nicotine products, including the suppression of a relevant submarket for safer cigarettes or other nicotine products that would have existed but for the Defendants' unlawful conduct and/or (2) as a customer in the broad market for drugs, and a potential customer in the relevant submarket for safer cigarettes or other nicotine products.

387. Pursuant to Fla. Stat. §§ 542.22 and 542.23, BC/BS Florida is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

388. BC/BS Florida is also entitled to injunctive relief requiring Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

COUNT 17

Florida False Advertising Act

(Fla. Stat. § 817.41)

[Against All Defendants]

389. BC/BS Florida restates and incorporates herein paragraphs 1 through 253 of this Complaint.

390. Florida's False Advertising Act, Fla. Stat. § 817.41, states, in pertinent part:

It shall be unlawful for any person to make or disseminate or cause to be made or disseminated before the general public of the state, or any portion thereof, any misleading advertisement. Such making or dissemination of misleading advertising shall constitute and is hereby declared to be fraudulent and unlawful, designed and intended for obtaining money or property under false pretenses.

391. In the conduct of trade or commerce, Defendants made and/or disseminated, and continue to make and/or disseminate, before the general public of Florida, misleading advertisements, including but not limited to the following: (1) misrepresentations and fraudulent concealment of the addictive nature of nicotine and of the adverse health consequences of tobacco products; (2) misrepresentations that the Defendants would provide the public and governmental authorities with objective, scientific information regarding cigarettes and other tobacco products; (3) causing a likelihood of confusion about the source, sponsorship, approval or certification of cigarettes and other tobacco products; (4) misrepresenting that cigarettes and other tobacco products were of a particular quality or grade; (5) fraudulently promoting filter and low-tar cigarettes as safer; and (6) fraudulently creating their "research councils" and using them to spread false information about their products and to promote false information that cigarettes and other tobacco products were safe or that other adverse health effects had not been established.

392. The Defendants knew that such statements, as described above, were false at the time they were made.

393. The false statements, as described above, were made for the purpose of inducing the public, including BC/BS Florida, to act in reliance thereon.

394. BC/BS Florida reasonably acted in reliance on such misleading advertising, as described above.

395. BC/BS Florida is a "person" within the meaning of, and is entitled to bring this action, under Fla. Stat. § 817.41.

396. As a direct and proximate cause of such false statements, as described above, BC/BS Florida has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes or other tobacco products.

397. Pursuant to Fla. Stat. § 817.41(6), BC/BS Florida is entitled to the damages it sustained, appropriate punitive damages, the costs of bringing this action and reasonable attorneys' fees.

COUNT 18

Florida Civil Remedies for Criminal Practices Act

(Fla. Stat. §§ 772.103(3) and (4))

[Against All Defendants except the

Council For Tobacco Research,

the Tobacco Institute and the Smokeless Tobacco Research Council, Inc.]

398. BC/BS Florida restates and incorporates herein paragraphs 1 through 279 of this Complaint.

399. Fla. Stat. § 772.103 states in pertinent part:

(3) [It is unlawful for any person] employed by, or associated with, any enterprise to conduct or participate, directly or indirectly, in such enterprise through a pattern of criminal activity. . . .

(4) [It is unlawful for any person] to conspire or endeavor to violate any of the provisions of subsection . . . (3).

400. At all relevant times, for the same reasons set forth in Courts One and Two of this Complaint, each of the Tobacco Companies and Hill and Knowlton was a "person" within the meaning of Fla. Stat. § 772.103.

401. At all relevant times, for the same reasons set forth in Counts One and Two of this Complaint, the Tobacco Institute, CTR (formerly TIRC) and STRC each constituted an "enterprise" within the meaning of Fla. Stat. § 772.103 and have together constituted an "enterprise" (collectively the "Public Relations Enterprise") within the meaning of Fla. Stat. § 772.103.

402. Defendants' violations of Fla. Stat. §§ 772.103(3) and (4) have proximately caused direct injury to the business and property of BC/BS Florida because it has been required to incur significant costs and expenses attributable to tobacco-related diseases. BC/BS Florida has been unable to participate in a health care market where there would have been alternative safer or less addictive cigarettes or other nicotine products that would have reduced costs and expenses attributable to tobacco-related diseases, or to advise, suggest, promote, subsidize or require its members or its beneficiaries to choose to use effective alternative products, such as safer or less addictive cigarettes or other nicotine products. BC/BS Florida was unable to reduce the costs of tobacco-related diseases of its members because it detrimentally relied on the false and fraudulent statements and information disseminated through an enterprise conducted with criminal intent by the Defendants through a pattern of criminal activity. In the absence of these violations of Fla. Stat. §§ 772.103(3) and (4), these costs and expenses would have been substantially reduced.

403. This injury is not a form of compensation for personal injuries suffered by smokers, and it is not a derivative injury of the harm caused to smokers. It is separate economic injury directly to the business and property of BC/BS Florida, and is wholly distinct from the harms suffered by individuals. BC/BS Florida suffered this economic injury from Defendants' violations of Fla. Stat. §§ 772.103(3) and (4) because it was obligated to pay for substantially all of the health care costs of its members. No other person has standing to bring an action for the recovery of damages for this direct injury caused by the Defendants' actions.

404. The consumption of tobacco products by the members of BC/BS Florida, and by consumers through the United States, was the very object of this wrongful conduct, and those products were used by BC/BS Florida members precisely as Defendants intended. The injury thus inflicted on BC/BS Florida was both foreseeable and intended.

405. Under the provisions of Fla. Stat. § 772.104, BC/BS Florida is entitled to bring this action and to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

COUNT 19

Florida Civil Remedies for Criminal Practices Act

(Fla. Stat. §§ 772.103(1) and (4))

[Against All Defendants]

406. BC/BS Florida restates and incorporates herein paragraphs 1 through 279 and paragraphs 398 through 405 of this Complaint.

407. Fla. Stat. § 772.103 states in pertinent part:

(1) [It is unlawful for any person] who has with criminal intent received any proceeds derived, directly or indirectly, from a pattern of criminal activity . . . to use or invest, whether directly or indirectly, any part of such proceeds . . . in . . . establishment or operation of any enterprise.

(4) [It is unlawful for any person] to conspire to violate any of the provisions of subsection (1). . . .

408. At all relevant times, each of the Defendants was a "person" within the meaning of Fla. Stat. § 772.103.

409. BC/BS Florida has been directly injured in its business and property by reason of Defendants' violations of Fla. Stat. §§ 772.103(1) and (4). Under the provisions of Fla. Stat. § 772.104, BC/BS Florida is entitled to bring this action and to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

GEORGIA

COUNT 20

Georgia RICO Act

(Ga. Code Ann. §§ 16-14-4(b) and (c))

[Against All Defendants except the

Council For Tobacco Research,

the Tobacco Institute and the Smokeless Tobacco Research Council, Inc.]

410. BC/BS Georgia restates and incorporates herein paragraphs 1 through 279 of this Complaint.

411. Ga. Code Ann. § 16-14-4 states in pertinent part:

(b) It is unlawful for any person employed by or associated with any enterprise to conduct or participate in, directly or indirectly, such enterprise through a pattern of racketeering activity.

(c) It is unlawful for any person to conspire or endeavor to violate any of the provisions of subsection . . . (b). . . .

412. At all relevant times, for the same reasons set forth in Counts One and Two of this Complaint, each of the Tobacco Companies and Hill and Knowlton was a "person" within the meaning of Ga. Code Ann. §16-14-4.

413. At all relevant times, for the same reasons set forth in Counts One and Two of this Complaint, the Tobacco Institute, CTR (formerly TIRC) and STRC each constituted an "enterprise" (collectively, the "Public Relations Enterprise") within the meaning of Ga. Code Ann. § 16-14-4.

414. Defendants' violations of Ga. Code Ann. §§ 16-14-4(b) and (c) have proximately caused direct injury to the business and property of BC/BS Georgia because it has been required to incur significant costs and expenses attributable to tobacco-related diseases. BC/BS Georgia has been unable to participate in a health care market where there would have been alternative safer or less addictive cigarettes or other nicotine products that would have reduced costs and expenses attributable to tobacco-related diseases, or to advise, suggest, promote, subsidize or require its members to choose to use effective alternative products, such as safer or less addictive cigarettes or other nicotine products. BC/BS Georgia was unable to reduce the costs of tobacco-related diseases of its members because it detrimentally relied on the false and fraudulent statements and information disseminated through an enterprise conducted by the Defendants through a pattern of racketeering activity. In the absence of those violations of Ga. Code Ann. §§ 16-14-4(b) and (c), these costs and expenses would have been substantially reduced.

415. This injury is not a form of compensation for personal injuries suffered by smokers, and it is not a derivative injury of the harm caused to smokers. It is separate economic injury directly to the business and property of BC/BS Georgia, and is wholly distinct from the harms suffered by individuals. BC/BS Georgia suffered this economic injury from Defendants' violations of Ga. Code Ann. §§ 16-14-4(b) and (c) because it was obligated to pay for substantially all of the health care costs of its members. No other person has standing to bring an action for the recovery of damages for this direct injury caused by these actions.

416. The consumption of tobacco products by the members of BC/BS Georgia and by consumers throughout the United States, was the very object of the Defendants' wrongful conduct, and those products were used by BC/BS Georgia members precisely as Defendants intended. The injury thus inflicted on BC/BS Georgia was both foreseeable and intended.

417. Under the provisions of Ga. Code Ann. §§ 16-14-6(c), BC/BS Georgia is entitled to bring this action and to recover three times the amount of actual damages sustained, appropriate punitive damages, the costs of bringing this suit and reasonable attorneys' fees.

LOUISIANA

COUNT 21

Louisiana Unfair Trade Practices and Consumer Protection Law

(La. Rev. Stat. Ann. § 51:1401)

[Against All Defendants]

418. BC/BS Louisiana restates and incorporates herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

419. Louisiana's Unfair Trade Practices and Consumer Protection Law, La. Rev. Stat. Ann. § 51:1405, states, in pertinent part:

Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.

420. The conduct described above and throughout this Complaint constitutes unfair methods of competition and unfair or deceptive acts or practices, all impacting the public interest and all immoral, unethical, oppressive, unscrupulous and/or substantially injurious, in violation of La. Rev. Stat. Ann. § 51:1405.

421. As a direct and proximate result of such wrongful activity, BC/BS Louisiana has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes and other tobacco products.

422. BC/BS Louisiana has suffered and continues to suffer ascertainable losses of money or property as a result of Defendants' use of unfair or deceptive methods, acts or practices under La. Rev. Stat. Ann. § 51.1405, and is a "person" within the meaning of, and is entitled to bring this action, under La. Rev. Stat. Ann. § 51:1409(a).

423. Pursuant to La. Rev. Stat. Ann § 51:1409, BC/BS Louisiana is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

COUNT 22

Louisiana Antitrust Act

(La. Rev. Stat. Ann. § 51:122)

[Against All Defendants]

424. BC/BS Louisiana restates and incorporates herein paragraphs 1 through 253 and paragraphs 280 through 299 of the Complaint.

425. La. Rev. Stat. Ann. § 51:122 provides, in pertinent part:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce in this state is illegal.

426. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants have entered into a combination or conspiracy in restraint of trade and commerce in the market for cigarettes or other nicotine products in the United States, including the State of Louisiana, in willful and/or flagrant violation of La. Rev. Stat. Ann. §51:122, Louisiana's analog to Sherman Act § 1.

427. As a direct and proximate result of the combination or conspiracy alleged in Counts Three and Four above, BC/BS Louisiana was injured in its business or property (1) by reason of Defendants' conspiracy in the market for cigarettes or other nicotine products, including the suppression of a relevant submarket for safer cigarettes or other nicotine products that would have existed but for the Defendants' unlawful conduct and/or (2) as a customer in the broad market for drugs, and a potential customer in the relevant submarket for safer cigarettes or other nicotine products.

428. Pursuant to La. Rev. Stat. Ann. § 51:137, BC/BS Louisiana is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

429. BC/BS Louisiana is also entitled to injunctive relief directing Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

MAINE

COUNT 23

Maine Deceptive Trade Practices Act

(Me. Rev. Stat. Ann. tit. 10, § 1212)

[Against All Defendants]

430. BC/BS Maine restates and incorporates herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

431. Maine's Deceptive Trade Practices Act, Me. Rev. Stat. Ann. tit. 10, § 1212, states, in pertinent part:

A person engages in a deceptive trade practice when, in the course of his business . . . he . . .

B. Causes likelihood of confusion or misunderstanding as to the source, sponsorship, approval or certification of goods or services;

E. Represents that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have;

G. Represents that goods or services are of a particular standard, quality or grade . . . if they are of another;

I. Advertises goods or services with intent not to sell them as advertised.

432. The conduct described above and throughout this Complaint constitutes deceptive trade practices, all impacting the public interest, in violation of Me. Rev. Stat. Ann. tit. 10, § 1212.

433. As a direct and proximate result of such wrongful activity, BC/BS Maine has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes or other tobacco products.

434. BC/BS Maine has been and continues to be damaged by Defendants' deceptive trade practices and is a "person" within the meaning of, and is entitled to bring this action, under Me. Rev. Stat. Ann. tit. 10, § 1213.

435. Pursuant to Me. Rev. Stat. Ann. tit. 10, § 1213, BC/BS Maine is entitled to recover injunctive relief, the costs of bringing this suit and reasonable attorneys' fees.

COUNT 24

Maine Antitrust Act

(Me. Rev. Stat. Ann. tit. 10, § 1101)

[Against All Defendants]

436. BC/BS Maine restates and incorporates herein paragraphs 1 through 253 and paragraphs 280 through 299 of this Complaint.

437. Maine's Antitrust Act, Me. Rev. Stat. Ann. tit. 10, § 1101, states, in pertinent part:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce in this State is declared to be illegal[.]

438. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants have entered into a combination or conspiracy in restraint of trade or commerce in the market for cigarettes or other tobacco products in the United States, including the State of Maine, in willful and/or flagrant violation of Me. Rev. Stat. Ann. tit. 10, § 1101, Maine's analog to Sherman Act § 1.

439. As a direct and proximate result of the combination or conspiracy alleged in Counts Three and Four above, BC/BS Maine was injured in its business or property (1) by reason of Defendants' conspiracy in the market for cigarettes or nicotine products, including the suppression of a relevant submarket for safer cigarettes or other nicotine tobacco products that would have existed but for the Defendants' unlawful conduct and/or (2) as a customer in the broad market for drugs, and a potential customer in the relevant submarket for safer cigarettes or other nicotine products.

440. Pursuant to Me. Rev. Stat. Ann. tit. 10, § 1104, BC/BS Maine is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

441. BC/BS Maine is also entitled to injunctive relief directing Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

MARYLAND

COUNT 25

Maryland Consumer Protection Act

(Md. Code Ann. Com. Law § 13-301 et seq.)

[Against All Defendants]

442. BC/BS NCA and BC/BS Maryland restate and incorporate paragraphs 1 through 253 and paragraph 378 of this Complaint.

443. Maryland's Consumer Protection Act, Md. Code Ann., Com. Law §§ 13-301 and 13-303, states, in pertinent part:

A person may not engage in and unfair or deceptive trade practices as defined in this subtitle. . . .

* * *

Unfair or deceptive trade practices include any:

(1) False . . . or misleading oral or written statement, visual description, or other representation of any kind which has the capacity, tendency or effect of deceiving or misleading consumers;

(2) Representation that

(i) Consumer goods . . . have a sponsorship, approval, accessory, characteristic, ingredient, use, benefit or quantity which they do not have;

(iv) Consumer goods . . . are of a particular standard, quality, grade, style or model which they are not;

(3) Failure to state a material fact if the failure deceives or tends to deceive;

(5) Advertisement or offer of consumer goods . . .

(i) Without intent to sell . . . them as advertised or offered. . . .

(9) Deception, fraud, false pretense, false promise, misrepresentation or knowing concealment, suppression, or omission of any material fact with the intent that a consumer rely on the same in connection with:

(i) The promotion or sale of any consumer goods. . . .

444. BC/BS NCA and BC/BS Maryland have been and continue to suffer injury or loss as the result of a practice prohibited by Md. Code Ann., Com. Law § 13-301, and are "persons" within the meaning of, and are entitled to bring this action, under Md. Code Ann., Com. Law § 13-408(a).

445. The conduct described above and throughout this Complaint constitutes unfair or deceptive trade practices, all impacting the public interest, in violation of Md. Code Ann., Com. Law §§ 13-301 and 13-303.

446. As a direct and proximate result of such wrongful activity, BC/BS NCA and BC/BS Maryland have suffered and will continue to suffer substantial damages and injuries to their businesses or property, including but not limited to their being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes and other tobacco products.

447. Pursuant to Md. Code Ann., Com. Law § 13-408, BC/BS NCA and BC/BS Maryland are entitled to recover the damages they sustained and reasonable attorneys' fees.

COUNT 26

Maryland Trade Regulation Act

(Md. Code Ann., Com. Law § 11-204)

[Against All Defendants]

448. BC/BS NCA and BC/BS Maryland restate and incorporate herein paragraphs 1 through 253 and paragraphs 280 through 299 of this Complaint.

449. Maryland's Trade Regulation Act, Md. Code Ann., Com. Law § 11-204, states, in pertinent part:

A person may not:

(1) By contract, combination, or conspiracy with one or more persons, unreasonably restrain trade or commerce. . . .

450. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants have entered into a combination or conspiracy in restraint of trade or commerce in the market for cigarettes or other nicotine products in the United States, including the State of Maryland, in willful and/or flagrant violation of Md. Code Ann., Com. Law § 11-204, Maryland's analog to Sherman Act § 1.

451. As a direct and proximate result of the combination or conspiracy alleged in Counts Three and Four above, BC/BS NCA and BC/BS Maryland were injured in their business or property by reason of Defendants' conspiracy in the market for cigarettes or other nicotine products, including the suppression of a relevant submarket for safer cigarettes or other nicotine products that would have existed but for the Defendants' unlawful conduct and/or (2) as customers in the broad market for drugs, and potential customers in the relevant submarket for safer cigarettes or other nicotine products.

452. Pursuant to Md. Code Ann., Com. Law § 11-209, BC/BS NCA and BC/BS Maryland are entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

453. BC/BS NCA and BC/BS Maryland are also entitled to injunctive relief directing Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

MASSACHUSETTS

COUNT 27

Massachusetts Consumer Protection Act

(Mass. Gen. Laws ch. 93A, § 2(a))

[Against All Defendants]

454. BC/BS Massachusetts restates and incorporates herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

455. The Massachusetts Consumer Protection Act, Mass. Gen. Laws ch. 93A, § 2(a), states, in pertinent part:

Unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce are hereby declared unlawful.

456. The conduct described above and throughout this Complaint constitutes deceptive and unfair methods of competition and/or unfair or deceptive acts or practices, all impacting the public interest, and all occurring primarily and substantially within the Commonwealth of Massachusetts, in violation of Mass. Gen. Laws ch. 93A, § 2(a), and the Defendants were engaged in trade or commerce at all relevant times.

457. As a direct and proximate result of such wrongful activity, BC/BS Massachusetts has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes or other tobacco products.

458. BC/BS Massachusetts has been and continues to be injured by Defendants' use or employment of methods, acts or practices in violation of Mass. Gen. Laws ch. 93A, § 2(a) and is a "person" within the meaning of, and is entitled to bring this action, under Mass. Gen. Laws ch. 93A, § 2(a).

459. Pursuant to Mass. Gen. Laws ch. 93A, § 11, BC/BS Massachusetts is entitled to recover three times the amount of actual damages sustained, the cost of bringing this suit and reasonable attorneys' fees.

COUNT 28

Massachusetts Antitrust Act

(Mass. Gen. Laws Ch. 93, § 4)

[Against All Defendants]

460. BC/BS Massachusetts restates and incorporates herein paragraphs 1 through 253 and paragraphs 280 through 299 of this Complaint.

461. The Massachusetts Antitrust Act. Mass. Gen. Laws ch. 93, § 4, states, in pertinent part:

Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce in the commonwealth shall be unlawful.

462. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants, with malicious intent, have entered into a combination or conspiracy in restraint of trade or commerce in the market for cigarettes or other tobacco products in the United States, including the Commonwealth of Massachusetts, in willful and/or flagrant violation of Mass. Gen. Laws ch. 93, § 4, Massachusetts' analog to Sherman Act § 1.

463. As a direct and proximate result of the combination or conspiracy alleged in Counts Three and Four above, BC/BS Massachusetts was injured in its business or property (1) by reason of Defendants' conspiracy in the market for cigarettes or other nicotine products, including the suppression of a relevant submarket for safer cigarettes or other nicotine products that would have existed but for the Defendants' unlawful conduct and/or (2) as a customer in the broad market for drugs, and a potential customer in the relevant submarket for safer cigarettes or other nicotine products.

464. Pursuant to Mass. Gen. Laws ch. 93, § 12, BC/BS Massachusetts is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

465. BC/BS Massachusetts is also entitled to injunctive relief directing Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

MICHIGAN

COUNT 29

Michigan Consumer Protection Act

(Mich. Comp. Laws § 445.903)

[Against All Defendants]

466. BC/BS Michigan restates and incorporates herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

467. Michigan's Consumer Protection Act, Mich. Comp. Laws § 445.903, states, in pertinent part:

Unfair, unconscionable, or deceptive methods, acts or practices in the conduct of trade or commerce . . . are unlawful and are defined as follows:

(c) Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits, or quantities which they do not have. . . .;

(e) Representing that goods or services are of a particular standard, quality, or grade. . . .;

(s) Failing to reveal a material fact, the omission of which tends to mislead or deceive the consumer, and which fact could not be reasonably known by the consumer.

468. The conduct described above and throughout this Complaint constitutes deceptive and unfair methods of competition, all impacting the public interest, in violation of Mich. Comp. Laws § 445.903.

469. As a direct and proximate result of such wrongful activity, BC/BS Michigan has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes or other tobacco products.

470. BC/BS Michigan has suffered and continues to suffer losses as a result of Defendants' violations of Mich. Comp. Laws § 445.903, and is a "person" within the meaning of, and is entitled to bring this action, under Mich. Comp. Laws § 445.911.

471. Pursuant to Mich. Comp. Laws § 445.911(2), BC/BS Michigan is entitled to recover the damages it sustained and reasonable attorneys' fees.

COUNT 30

Michigan False Advertising Act

(Mich. Comp. Laws § 445.356)

[Against All Defendants]

472. BC/BS Michigan restates and incorporates herein paragraphs 1 through 253 of this Complaint.

473. Michigan's False Advertising Act, Mich. Comp. Laws § 445.356, states, in pertinent part:

A person shall not knowingly make, publish, disseminate, circulate or place before the public an advertisement which contains a statement or representation which is untrue, deceptive, or misleading.

474. In the conduct of trade or commerce, Defendants have knowingly made, published, disseminated and/or placed before the public the following untrue, deceptive or misleading statements or representations:

a. Targeting people with deceptive advertising by misrepresenting the characteristics, ingredients, uses or benefits of Defendants' tobacco products; and

b. Engaging for decades in a wide variety of misrepresentations and fraudulent concealment of material facts, directly or by implication, including but not limited to: (1) misrepresentations and fraudulent concealment of the addictive nature of nicotine and of the adverse health consequences of nicotine tobacco products; (2) misrepresentations and fraudulent concealment about Defendants' ability to manipulate and their practice of manipulating nicotine levels and the addictive qualities of nicotine tobacco products; (3) misrepresentations that the Defendants would provide the public and governmental authorities with objective, scientific information regarding cigarettes and other tobacco products; (4) fraudulent concealment of certain aspects of cigarettes and other tobacco products, including the availability of safer, less-addictive products as a substitute to cigarettes and other tobacco products; (5) causing a likelihood of confusion about the source, sponsorship, approval or certification of cigarettes and other tobacco products; (6) misrepresenting that nicotine tobacco products have sponsorship, approval, characteristics, ingredients or benefits that they do not have and that Defendants knew that they did not have; (7) misrepresenting that cigarettes and other tobacco products were of a particular quality or grade, when Defendants knew that they were not; (8) engaging in unconscionable trade practices; (9) fraudulently promoting filter and low-tar cigarettes as safer; (10) fraudulently manipulating scientific research into the health hazards of smoking; and (11) fraudulently creating their "research councils" and using them to spread false information about their products and to promote false information that cigarettes and other tobacco products were safe or that adverse heath effects had not been established.

475. As a direct and proximate result of such wrongful activity, BC/BS Michigan has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes or other tobacco products.

476. BC/BS Michigan has suffered and continues to suffer losses as a result of Defendants' violation of Mich. Comp. Law § 445.356 and is a "person" within the meaning of, and is entitled to bring this action, under Mich. Comp. Laws § 445.360.

477. Pursuant to Mich. Comp. Laws §§ 445.356 and 445.360, BC/BS is entitled to recover damages it sustained for each day on which violations of Mich. Comp. Laws § 445.356 are found, plus reasonable attorneys' fees.

NEW HAMPSHIRE

COUNT 31

New Hampshire Consumer Protection Act

(N.H. Rev. Stat. Ann. § 358-A:2)

[Against All Defendants]

478. BC/BS New Hampshire restates and incorporates herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

479. New Hampshire Rev. Stat. Ann. § 358-A; 2 states, in pertinent part:

It shall be unlawful for any person to use any unfair method of competition or any unfair or deceptive act or practice in the conduct of any trade or commerce within this state.

480. The conduct described above and throughout this Complaint constitutes unfair methods of competition and/or unfair or deceptive practices, all impacting the public interest and all in violation of public policy, immoral, unethical, oppressive and/or unscrupulous, in violation of N.H. Rev. Stat. Ann. § 358-A:10 (I).

481. As a direct and proximate result of such wrongful activity, BC/BS New Hampshire has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes or other tobacco products.

482. BC/BS New Hampshire has been and continues to be injured by Defendants' use of unlawful methods, acts or practices under N.H. Rev. Stat. Ann. § 358-A:2, and is a "person" within the meaning of, and is entitled to bring this action, under N.H. Rev. Stat. Ann. §358-A:10(I).

483. Pursuant to N.H. Rev. Stat. Ann. § 358-A:10(I), BC/BS New Hampshire is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

COUNT 32

New Hampshire Combinations and Monopolies Law

(N.H. Rev. Stat. Ann. § 356:2)

[Against All Defendants]

484. BC/BS New Hampshire restates and incorporates herein paragraphs 1 through 253 and paragraphs 280 through 299 of this Complaint.

485. New Hampshire's Combinations and Monopolies Law, N.H. Rev. Stat. Ann. § 356:2, states, in pertinent part:

I. Every contract, combination or conspiracy in restraint of trade is unlawful.

II. Every contract, combination, or conspiracy is unlawful which has the purpose or the effect of:

(b) fixing, controlling, maintaining, limiting or discontinuing the production, manufacture, mining, sale or distribution of any commodity or service[.]

486. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants have entered into a combination or conspiracy in restraint of trade or commerce in the market for cigarettes or other nicotine products in the United States, including the State of New Hampshire, in willful and/or flagrant violation of N.H. Rev. Stat. Ann. § 356:2, New Hampshire's analog to Sherman Act § 1.

487. As a direct and proximate result of the combination or conspiracy alleged in Counts Three and Four above, BC/BS New Hampshire was injured in its business or property (1) by reason of Defendants' conspiracy in the market for cigarettes or other nicotine tobacco products, including the suppression of a relevant submarket for safer cigarettes or other nicotine products that would have existed but for the Defendants' unlawful conduct and/or (2) as a customer in the broad market for drugs, and a potential customer in the relevant submarket for safer cigarettes or other nicotine products.

488. Pursuant to N.H. Rev. Stat. Ann. § 356:11(II), BC/BS New Hampshire is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

489. BC/BS New Hampshire is also entitled to injunctive relief directing Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

NEW JERSEY

COUNT 33

New Jersey Consumer Fraud Act

(N.J. Stat. Ann. § 56:8-2)

[Against All Defendants]

490. BC/BS New Jersey restates and incorporates herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

491. New Jersey's Consumer Fraud Act, N.J. Stat. Ann. § 56:8-2, states, in pertinent part:

The act, use or employment by any person of any unconscionable commercial practice, deception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression or omission of any material fact with intent that others rely upon such concealment, suppression or omission, in connection with the sale or advertisement of any merchandise . . . whether or not such person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice[.]

492. The conduct described above and throughout this Complaint constitutes unconscionable commercial practices and/or knowing concealment of material facts, all impacting the public interest, in violation of N.J. Stat. Ann. § 56:8-2.

493. As a direct and proximate result of such wrongful activity, BC/BS New Jersey has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes or other tobacco products.

494. BC/BS New Jersey has suffered and continues to suffer ascertainable losses of money or property as a result of Defendants' use or employment of practices declared unlawful by N.J. Stat. Ann. § 56:8-2, and is a "person" within the meaning of, and is entitled to bring this action, under N.J. Stat. Ann. §§ 56:8-1, 56:8-2 and 56:8-19.

495. Pursuant to N.J. Stat. Ann. § 56:8-19, BC/BS New Jersey is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

COUNT 34

New Jersey Antitrust Act

(N.J. Stat. Ann. § 56:9-3)

[Against All Defendants]

496. BC/BS New Jersey restates and incorporates herein paragraphs 1 through 253 and paragraphs 280 through 299 of this Complaint.

497. The New Jersey Antitrust Act, N.J. Stat. Ann. §56:9-3, in pertinent part:

Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce, in this State, shall be unlawful.

498. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants have entered into a combination or conspiracy in restraint of trade or commerce in the market for cigarettes or other nicotine products in the United States, including the State of New Jersey, in willful and/or flagrant violation of N.J. Stat. Ann. § 56:9-3, New Jersey's analog to Sherman Act § 1.

499. As a direct and proximate result of the combination or conspiracy alleged in Counts Three and Four above, BC/BS New Jersey was injured in its business and property (1) by reason of Defendants' conspiracy in the market for cigarettes or other nicotine tobacco products, including the suppression of a relevant submarket for safer cigarettes or other nicotine products that would have existed but for the Defendants' unlawful conduct and/or (2) as a customer in the broad market for drugs, and a potential customer in the relevant submarket for safer cigarettes or other nicotine products.

500. Pursuant to N.J. Stat. Ann. § 56:9-12, BC/BS New Jersey is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

501. BC/BS New Jersey is also entitled to injunctive relief directing Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

COUNT 35

New Jersey Racketeering Law

(N.J. Stat. Ann. §§ 2C:41-2(c) and (d))

[Against All Defendants except the

Council For Tobacco Research,

the Tobacco Institute and the Smokeless Tobacco Research Council, Inc.]

502. BC/BS New Jersey restates and incorporates herein paragraphs 1 through 279 of this Complaint.

503. N.J. Stat. Ann. § 2C:41-2 states in pertinent part:

(c) It shall be unlawful for any person employed by or associated with any enterprise engaged in or activities of which affect trade or commerce to conduct or participate, directly or indirectly, in the conduct of the enterprise's affairs through a pattern of racketeering activity. . . .

(d) It shall be unlawful for any person to conspire . . . to violate any of the provisions of this section.

504. At all relevant times, for the same reasons set forth in Counts One and Two of this Complaint, each of the Tobacco Companies and Hill and Knowlton was a "person" within the meaning of N.J. Stat. Ann. § 2C:41-1(b), as each of the Tobacco Companies and Hill and Knowlton was "capable of holding a legal or beneficial interest in property."

505. At all relevant times, for the same reasons for the same reasons set forth in Counts One and Two of this Complaint, the Tobacco Institute, CTR (formerly TIRC) and STRC each constituted an "enterprise" within the meaning of N.J. Stat. Ann. § 2C:41-1(c) and have together constituted an "enterprise" (collectively, the "Public Relations Enterprise") within the meaning of N.J. Stat. Ann. § 2C:41-1(c).

506. Defendants' violations of N.J. Stat. Ann. §§ 2C:41-2(c) and (d) have proximately caused direct injury to the business and property of BC/BS New Jersey because it has been required to incur significant costs and expenses attributable to tobacco-related diseases. BC/BS New Jersey has been unable to participate in a health care market where there would have been alternative safer or less addictive cigarettes or other nicotine products that would have reduced costs and expenses attributable to tobacco-related diseases, or to advise, suggest, promote, subsidize or require its members or its beneficiaries to choose to use effective alternative products, such as safer or less addictive cigarettes or other nicotine products. BC/BS New Jersey was unable to reduce the costs of tobacco-related diseases of its members because it detrimentally relied on the false and fraudulent statements and information disseminated through an enterprise conducted by the Defendants through a pattern of racketeering activity. In the absence of this violation of N.J. Stat. Ann. §§ 2C:41-2(c) and (d), these costs and expenses would have been substantially reduced.

507. This injury is not a form of compensation for personal injuries suffered by smokers, and it is not a derivative injury of the harm caused to smokers. It is separate economic injury directly to the business and property of BC/BS New Jersey, and is wholly distinct from the harms suffered by individuals. BC/BS New Jersey suffered this economic injury from the Defendants' violations of N.J. Stat. Ann. §§ 2C:41-2(c) and (d) because it was obligated to pay for substantially all of the health care costs of its members. No other person has standing to bring an action for the recovery of damages for this direct injury caused by these actions.

508. The consumption of tobacco products by the members of BC/BS New Jersey, and by consumers throughout the United States, was the very object of the Defendants' wrongful conduct, and those products were used by BC/BS New Jersey members precisely as Defendants intended. The injury thus inflicted on BC/BS New Jersey by the Defendants was both foreseeable and intended.

509. Under the provisions of N.J. Stat. Ann. § 2C:41-4(c), BC/BS New Jersey is entitled to bring this action and to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

COUNT 36

New Jersey Racketeering Law

(N.J. Stat. Ann. §§ 2C:41-2(a) and (d))

[Against All Defendants]

510. BC/BS New Jersey restates and incorporates herein paragraphs 1 through 279 and paragraphs 502 through 509 of this Complaint.

511. N.J. Stat. Ann. §§ 2C:41-2(a) and (d) provide, in pertinent part:

(a) It shall be unlawful for any person who has received any income derived, directly or indirectly, from a pattern of racketeering activity . . . in which he has engaged as a principal . . . to use or invest, directly or indirectly, any part of the income, or the proceeds of the income, in the acquisition of any interest in, or the establishment or operation of any enterprise which is engaged in or the activities of which affect trade or commerce.

(d) It shall be unlawful for any person to conspire . . . to violate any of the provisions of this section.

512. At all relevant times, for the reasons set forth in Counts One and Two of this Complaint, each Defendant was a "person" within the meaning of N.J. Stat. Ann. § 2C:41-1(b), as each Defendant was "capable of holding a legal or beneficial interest in property."

513. BC/BS New Jersey has been directly injured in its business and property by reason of Defendants' violations of N.J. Stat. Ann. §§ 2C:41-2(a) and (d). Under the provisions of N.J. Stat. Ann. § 2C:41-4(c), BC/BS New Jersey is entitled to bring this action and to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

NEW YORK

COUNT 37

New York Deceptive Trade Act

(N.Y. Gen. Bus. Law § 349)

[Against All Defendants]

514. New York Care, Empire and UNYS restate and incorporate herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

515. New York's Deceptive Trade Act, N.Y. Gen. Bus. Law § 349(a), states, in pertinent part:

Deceptive acts or practices in the conduct of any business, trade or commerce or in the furnishing of any service in this state are hereby declared unlawful.

516. The conduct described above and throughout this Complaint constitutes deceptive and unfair acts or practices in the conduct of business, trade and/or commerce, all impacting the public interest, in violation of N.Y. Gen. Bus. Law § 349(a).

517. As a direct and proximate result of such wrongful activity, New York Care, Empire and UNYS have suffered and will continue to suffer substantial damages and injuries to their businesses or property, including but not limited to their being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes or other tobacco products.

518. New York Care, Empire and UNYS have been and continue to be injured by Defendants' violations of N.Y. Gen. Bus. Law § 349(a), and are "persons" within the meaning of, and are entitled to bring this action, under N.Y. Gen. Bus. Law § 349.

519. Pursuant to N.Y. Gen. Bus. Law § 349(h), New York Care, Empire and UNYS are entitled to recover the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

COUNT 38

New York False Advertising Act

(N.Y. Gen. Bus. Law § 350)

[Against All Defendants]

520. New York Care, Empire and UNYS restate and incorporate herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

521. N.Y. Gen. Bus. Law § 350, states, in pertinent part:

False advertising in the conduct of any business, trade or commerce or in the furnishing of any service in this state is hereby declared unlawful.

522. N.Y. Gen. Bus. Law § 350-a, states, in pertinent part:

The term "false advertising" means advertising, including labeling, . . . [which] is misleading in a material respect. In determining whether any advertising is misleading, there shall be taken into account (among other things) not only representations made by statement, word, design, device, sound or any combination thereof, but also the extent to which the advertising fails to reveal facts material in the light of such representations with respect to the commodity . . . to which the advertising relates under the conditions prescribed in said advertisement, or under such conditions as are customary or usual.

523. N.Y. Gen. Bus. Law § 350(d) provides, in pertinent part:

Any person who has been injured by reason of any violation of section three hundred fifty or three hundred fifty-a of this article may bring an action in his own name to enjoin such unlawful act or practice, an action to recover his actual damages or fifty dollars, whichever is greater, or both such actions.

524. Defendants, by engaging in the conduct described above and throughout this Complaint, violated and continue to violate Gen. Bus. Law § 350.

525. New York Care, Empire and UNYS have been and continue to be injured by reason of Defendants' violations of N.Y. Gen. Bus. Law §§ 350 and 350-a, and are "persons" within the meaning of, and are entitled to bring this action, under N.Y. Gen. Bus. Law § 350-e.

526. As a result of Defendants' false advertising, New York Care, Empire and UNYS have suffered and will continue to suffer substantial injuries and damages for which Defendants are jointly and severally liable. Pursuant to N.Y. Gen. Bus. Law § 350-e, New York Care, Empire and UNYS are entitled to actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

COUNT 39

New York Donnelly Act

(N.Y. Gen. Bus Law § 340(1)

[Against All Defendants]

527. New York Care, Empire and UNYS restate and incorporate herein paragraphs 1 through 252 and paragraphs 280 through 299 of this Complaint.

528. New York's Donnelly Act, N.Y. Gen. Bus Law § 340(1) states, in pertinent part:

Every contract, agreement, arrangement or combination whereby . . . [c]ompetition or the free exercise of any activity in the conduct of any business, trade or commerce or in the furnishing of any service in this state is or may be restrained . . . is hereby declared to be against public policy, illegal and void.

529. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants have entered into a combination or conspiracy in restraint of trade or commerce in the market for cigarettes or other nicotine products in the United States, including the State of New York, in willful and/or flagrant violation of N.Y. Gen. Bus Law § 340, New York's analog to Sherman Act § 1.

530. As a direct and proximate result of the combination or conspiracy alleged in Counts Three and Four above, New York Care, Empire and UNYS were injured in their business or property (1) by reason of Defendants' conspiracy in the market for cigarettes or other nicotine products, including the suppression of a relevant submarket for safer cigarettes or other nicotine products that would have existed but for the Defendants' unlawful conduct and/or (2) as a customer in the broad market for drugs, and a potential customer in the relevant submarket for safer cigarettes or other nicotine products.

531. Pursuant to N.Y. Gen. Bus Law § 340(5), New York Care, Empire and UNYS are entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

532. New York, Empire and UNYS are also entitled to injunctive relief directing Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

RHODE ISLAND

COUNT 40

Rhode Island Antitrust Act

(R.I. Gen. Laws § 6-36-4)

[Against All Defendants]

533. BC/BS Rhode Island restates and incorporates herein paragraphs 1 through 253 and 280 through 299 of the Complaint.

534. Rhode Island's Antitrust Act, R.I. Gen. Laws § 6-36-4, states, in pertinent part:

Every contract, combination or conspiracy in restraint of, or to monopolize, trade or commerce is unlawful.

535. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants have entered into a combination or conspiracy in restraint of trade or commerce in the market for cigarettes or other nicotine products in the United States, including the State of Rhode Island, in willful and/or flagrant violation of R.I. Gen. Laws 6-36-4, Rhode Island's analog to Sherman Act § 1.

536. As a direct and proximate result of the combination or conspiracy alleged in Counts Three and Four above, BC/BS Rhode Island was injured in its business or property (1) by reason of Defendants' conspiracy in the market or cigarettes or other nicotine products, including the suppression of a relevant submarket for safer cigarettes or other nicotine products that would have existed but for the Defendants' unlawful conduct and/or (2) as a customer in the broad market for drugs, and a potential customer in the relevant submarket for safer cigarettes or other nicotine products.

537. Pursuant to R.I. Gen. Laws § 6-36-11(a), BC/BS Rhode Island is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

538. BC/BS Rhode Island is also entitled to injunctive relief directing Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

TENNESSEE

COUNT 41

Tennessee Consumer Protection Act

(Tenn. Code Ann. § 47-18-104)

[Against All Defendants]

539. BC/BS Tennessee restates and incorporates herein paragraphs 1 through 253 and paragraph 378 of this Complaint.

540. Tennessee's Consumer Protection Act, Tenn. Code. Ann. § 47-18-104, states, in pertinent part:

[T]he following unfair or deceptive acts or practices affecting the conduct of any trade or commerce are declared to be unlawful and in violation of this part:

(5) Representing that goods or services have sponsorship, approval, characteristics, ingredients, uses, benefits or quantities that they do not have. . . .;

(7) Representing that goods or services are of a particular standard, quality or grade. . . . ;

(9) Advertising good or services with intent not to sell then as advertised;

(21) Using statements or illustrations in any advertisement which create a false impression of the grade, quality, quantity, make, value, age, size, color, usability or origin of the good or services offered, or which may otherwise misrepresent the goods or services in such a manner that later, on disclosure of the true facts, there is a likelihood that the buyer may be switched from the advertised goods or services to other goods or services;

(27) Engaging in any other act or practice which is deceptive to the consumer or to any other person [.]

541. The conduct described above and throughout this Complaint constitutes deceptive and unfair practices and/or methods of competition, all impacting the public interest, in violation of Tenn. Code. Ann. § 47-18-104.

542. As a direct and proximate result of such wrongful activity, BC/BS Tennessee has suffered and will continue to suffer substantial damages and injuries to its business or property, including but not limited to its being required to pay and paying the costs of medical care for disease, illness, addiction and adverse health consequences caused by cigarettes or other tobacco products.

543. BC/BS Tennessee has suffered and continues to suffer ascertainable losses of money or property as a result of Defendants' use of unfair or deceptive acts or practices declared to be unlawful under Tenn. Code Ann. § 47-18-104, and is a "person" within the meaning of, and is entitled to bring this action, under Tenn. Code. Ann. §§ 47-18-104(b) and 47-18-109(a)(1).

544. Pursuant to Tenn. Code. Ann. § 47-18-109, BC/BS Tennessee is entitled to recover three times the amount of actual damages sustained and such other relief as the Court deems necessary and proper.

WEST VIRGINIA

COUNT 42

West Virginia Antitrust Act

(W. Va. Code § 47-18-3, 47-18-4)

[Against All Defendants]

545. Mountain State restates and incorporates herein paragraphs 1 through 253 and paragraph 280 through 299 of this Complaint.

546. West Virginia's Antitrust Act, W. Va. Stat. § 47-18-3(a), states, in pertinent part:

Every contract, combination in the form of trust or otherwise, or conspiracy in restraint of trade or commerce in this State shall be unlawful.

547. Beginning at a time uncertain, but at least as early as the 1950s, and continuing to the present, Defendants have entered into a combination or conspiracy in restraint of trade or commerce in the market for cigarettes or other nicotine products in the United States, including the State of West Virginia, in willful and/or flagrant violation of W. Va. Code § 47-18-3, West Virginia's analog to Sherman Act § 1.

548. As a direct and proximate result of the combination or conspiracy alleged in Counts Three and Four above, Mountain State was injured in its business or property (1) by reason of Defendants' conspiracy in the market for cigarettes or other nicotine products, including the suppression of a relevant submarket for safer cigarettes or other nicotine products that would have existed but for the Defendants' unlawful conduct and/or (2) as a customer in the broad market for drugs, and a potential customer in the relevant submarket for safer cigarettes or other nicotine products.

549. Pursuant to W.Va. Code § 47-18-9, Mountain State is entitled to recover three times the amount of actual damages sustained, the costs of bringing this suit and reasonable attorneys' fees.

550. Mountain State is also entitled to injunctive relief directing Defendants to cease and desist from conspiring to suppress research, development and marketing of safer cigarettes, and directing the Defendants to take such further steps as the Court may deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy.

JURY DEMAND

Pursuant to Federal Rule of Civil Procedure 38, the BC/BS Plans respectfully demand a jury on all triable issues.

PRAYER FOR RELIEF

WHEREFORE, the BC/BS Plans pray for relief and judgment against Defendants, jointly and severally, as follows:

1. Adjudging and decreeing that Defendants engaged in the conduct alleged herein, acting in concert and declaring that by such conduct, Defendants have violated: the provisions of the Clayton Act and the Sherman Act; the Racketeering Influenced Corrupt Organizations Act; the common law of California, the District of Columbia, Florida, Georgia, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, Pennsylvania, Rhode Island, Tennessee and West Virginia and the civil law of Louisiana and the statutory law of each of said states as asserted herein; and any other similar statute or law that may be found applicable to Defendants' conduct.

2. Enjoining and restraining Defendants and their officers, agents, servants and employees, and those in active concert or participation with them, from continuing to engage in or engaging in restraints of trade, racketeering, unfair and deceptive trade practices and other wrongful or unlawful conduct similar in purpose or effect to the wrongful or unlawful conduct described herein and, without limiting the generality of the foregoing, ordering Defendants and their officers, agents, servants and employees, and those in active concert or participation with them:

To cease and desist from conspiring to suppress the research, development and marketing of safer cigarettes and to take such further steps as the Court shall deem necessary and appropriate to reverse the anticompetitive effects of Defendants' conspiracy;

To cease developing, manufacturing or marketing cigarettes or other products with raised, enhanced, changed, altered or manipulated levels of nicotine or nicotine impact for the purpose of creating or sustaining nicotine addiction;

To cease developing, growing or importing nicotine-enriched or high-yield nicotine tobacco leaf in the United States or abroad or hiring third parties to do the same;

To cease any attempt to addict any person to nicotine and to otherwise cease interfering with or causing damage to Plaintiffs' funds, programs or smoking cessation activities;

To disclose the nicotine yields of their products based on machine tests and human confirmation studies for each brand;

To cease targeting minors in advertising;

To cease targeting minorities in advertising; and

To publicly disclose and publicize all information and research relating to smoking, health and addiction and to publicly state that Defendants know and have known for years that cigarettes and other tobacco products are harmful and addictive, indicating what diseases and illnesses are associated with Defendants' products and acknowledging that the development and marketing of alternative safer or less-addictive cigarettes has been suppressed.

3. Requiring Defendants to pay restitution to the Plaintiff BC/BS Plans of the amounts paid by Plaintiffs that in fairness should be paid by Defendants.

4. Awarding damages and compensation in an amount to be determined but in excess of $1 billion to the Plaintiff BC/BS Plans for all past and future harm, including but not limited to all past and future health care expenditures for diseases and illnesses, including nicotine addiction, associated with tobacco products.

5. Ordering treble damages pursuant to 18 U.S.C. § 1964(c), 15 U.S.C. § 15 and all of the relevant state statutory damages claims asserted herein.

6. Requiring Defendants to disgorge all unjust profits from sales of tobacco products to individual BC/BS Plan members, which in equity and good conscience, Defendants should not be allowed to retain.

7. Ordering pre- and post-judgment interest and all costs, as provided by law.

8. Awarding the BC/BS Plans their reasonable attorneys' fees and costs.

9. Granting such other and further relief as the Court deems equitable, just and proper.

Dated: New York, New York

April 29, 1998

DEWEY BALLANTINE LLP

By:________________________

Paul J. Bschorr (PB 0129)

Vincent R. FitzPatrick (VF 1636)

Members of the Firm

1301 Avenue of the Americas

New York, New York 10019-6092

(212) 259-8000

Of Counsel: Robert J. Morrow (RM 4427)

Michael C. Hefter (MH 2556)

Heather K. McDevitt (HM 9973)

1775 Pennsylvania Avenue, N.W.

Washington, D.C. 20006-4605

(202) 862-1000

Of Counsel: Martha J. Talley

Attorneys for Plaintiffs

The BC/BS Plans

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