OPINION OF THE COURT
Motion sequences Nos. 003, 004, and 006 are consolidated for purposes of disposition.
In this purported antitrust class action commenced on behalf of smokers, defendants, Philip Morris Companies, Inc., Philip Morris Incorporated (Philip Morris), R.J.R. Nabisco Holdings Corp., R.J. Reynolds Tobacco Co. (RJR), B.A.T. Industries, PLC, British American Tobacco Co., Ltd. (BAT), Batus Holdings, Inc., Brown & Williamson Tobacco Corp., Lorillard Tobacco, Inc., Loews Corporation, Liggett Group, Inc., and Brooke Group, Ltd. (defendants), move to dismiss, pursuant to CPLR 3211 (a) (5) and (7), on the ground that CPLR 901 (b) prohibits an action, such as this, seeking treble damages.
Plaintiffs, Virginia Lennon, Joseph Nierman, and Dorothy Sylvester, claim that defendants have violated General Business Law § 340 (6), commonly referred to as the Donnelly Act
The facts alleged in the complaint are unchallenged by defendants, and therefore, are presumed to be true, as this court must for the purpose of these motions (Leon v Martinez,
During much of the 20th century, the United States cigarette industry has been dominated by four to six major firms. Five major firms produce more than 99% of cigarettes sold in the United States. According to the complaint, those firms and their approximate shares of the United States cigarette market as of 1998 were: Philip Morris, Inc., 52.68%; R.J. Reynolds Tobacco Company, 24%; Brown & Williamson Tobacco Corporation, the United States subsidiary of British American Tobacco Industries of Britain, 16%; Lorillard, Inc., 6.2%; and Liggett Group, Inc., 1.1%. Plaintiffs contend that the United States tobacco market has annual revenues of approximately $45 billion.
According to the complaint, between 1950 and 1980, price competition was completely absent from the United States cigarette market. Quoting from a United States Supreme Court decision, plaintiff alleges that in 1993, “[t]he [pre-1980’s] cigarette industry * * * has long been one of America’s most profitable, in part because for many years there was no significant price competition among the rival firms * * * List prices for cigarettes increased in lockstep twice a year, for a number of years, irrespective of the rate of inflation, changes in the costs of production, or shifts in consumer demand.” (Quoting Brooke Group v Brown & Williamson Tobacco Corp.,
Plaintiffs contend that lockstep pricing practices continued. On March 7, 1997, in response to the proposed $368 billion tobacco/health-care settlement, RJR announced that the prices of its cigarettes would increase by 4 to 5 cents per pack. Shortly thereafter, Philip Morris announced an even higher price
Between July 1997 and November 1998, the defendants entered settlements with individual states regarding healthcare lawsuits brought by the states. After each settlement, each of the defendants raised the prices of their cigarettes by the identical amount even though these price increases exceeded the amount necessary to cover the costs of each particular settlement.
On November 18, 1998, Philip Morris and RJR announced, just moments apart, that each company would increase the prices for all their cigarette brands by a record 45 cents per pack. The other defendants raised their prices to match this increase shortly thereafter.
Then, on August 27, 1999, Philip Morris announced that it would raise prices on its cigarette products by 18 cents per pack in order to cover the upcoming 10 cents per pack increase in federal excise taxes. The other defendants immediately followed suit, matching Philip Morris’ price increase for their products.
On January 14, 2000, Philip Morris and RJR again announced that they would both increase prices by 13 cents per pack. Again, the other defendants immediately followed suit and raised their prices by the same amount.
Meanwhile, the defendants maintain information in an electronic data base in Pittsburgh that reports the discounts and product promotions for all the products of other defendant competitors. According to the complaint, defendants all have access to the data base which they allegedly use to monitor cigarette prices.
Plaintiffs contend that defendants’ cigarette prices have been set significantly above competitive levels, despite the fact that, according to plaintiffs, cigarette demand has declined in the United States and defendants have experienced excess ciga
Without describing the factual underpinning of plaintiffs’ claims, plaintiffs allege that in acting on their agreement, defendants met to discuss and agree upon future price increases, and shared actual transactional prices. The effects of their activities were to maintain the price of cigarettes at artificially high levels. They contend that defendants’ activities lessen price competition and deprived plaintiffs of the benefit of free and open competition, in violation of the Donnelly Act. Based upon these facts, the complaint also asserts that defendants have violated General Business Law § 349 which prohibits unfair and deceptive business practices.
Defendants seek dismissal of the complaint on the ground that plaintiffs seek treble damages under the Donnelly Act, which they contend are punitive in nature, and as such, disallows use of the class action statute under CPLR 901 (b). Defendants also argue that the provision of the Donnelly Act which affords a right of action to indirect purchasers has no retroactive effect, the acts complained of occurred prior to its enactment, and those activities that postdate the 1998 amendment of the Act are insufficient to state a claim.
The Donnelly Act declares illegal and against public policy any agreement or monopoly in the conduct of any business or trade whereby “[Competition or the free exercise of any activity in the conduct of any business * * * [is] retrained” (General Business Law § 340 [1]). Violation of the Act permits those who sustain damages to recover treble damages along with costs and attorneys’ fees (General Business Law § 340 [5]). Until 1998, the law allowed only direct purchasers to sue for violation of the antitrust laws. General Business Law § 340 (6) extends to indirect purchasers or “any political subdivision or public authority of the state, or any person who has sustained damages by reason of violation of [General Business Law § 340],” the right to maintain an action to recover damages. Although General Business Law § 340 (6) gives indirect purchasers, typically end users or consumers of products and services, a right of action, CPLR 901 (b) provides that “[u]nless a statute creating or imposing a penalty, or a minimum measure of recovery specifically authorizes the recovery thereof in a class action, an action to recover a penalty, or minimum measure of recovery created or imposed by statute may not be maintained
A long line of federal cases clearly supports plaintiffs’ contention that treble damages under the Sherman Act and the Clayton Act are remedial, not punitive, in nature (Brunswick Corp. v Pueblo Bowl-O-Mat,
A fundamental defect in plaintiffs’ argument, however, is that the federal and state antitrust statutes differ when read in light of their statutes’ class action counterpart. Although federal courts have held that treble damages are remedial, not punitive, New York state courts have historically concluded that treble damages are punitive in nature (Fults v Munro,
Federal case law upon which plaintiffs rely is inapposite, because it does not contemplate, and therefore, fails to demonstrate, how a treble damages class action can bypass CPLR 901 (b)’s prohibition. Class action Federal Rules of Civil Procedure rule 23 has no such similar prohibition. Contrary to
The Donnelly Act is silent on whether class actions can be commenced by indirect purchasers. Plaintiffs rely on transcripts from the May 1998 Assembly floor debate regarding the amendment to section 340, adding subdivision (6) to that provision. These transcripts show an exchange between Assemblyman Straniere and Assemblyman Brodsky, the sponsor of the amendment in the Assembly, where Brodsky informs the Assembly that this amendment is intended to allow for class action suits brought under the Act (Assembly debate transcripts, May 26, 1998, at 34). Plaintiffs also submit an excerpt from a letter addressed to Governor Pataki and written by the Business Council of New York State, an opponent of the amendment, which stated that the amendment “simply provides an additional and unnecessary avenue for the litigation of consumer class actions.” (Letter to Honorable James McGuire, Counsel to Governor, Nov. 18, 1998, Bill Jacket, L 1998, ch 653.) The excerpts from the floor debate and the letter in opposition may indicate that the Legislature intended to allow class actions by indirect purchasers. However, the rules of
Indirect purchasers have been afforded essentially a right of action which is hollow in effect, despite the purpose of General Business Law § 340 (6) and what the Legislature may have intended. The most prevalent indirect purchaser, the consumer, will have little incentive to pursue protracted antitrust litigation when the loss at stake is their own personal loss. Nor will individual consumers have the resources to sustain a claim against defendants such as the tobacco manufacturers. Without the class action procedure, indirect purchasers are unlikely to utilize General Business Law § 340 (6).
Further, this court believes that class actions are the only means of avoiding multiple liability for the same harm and to ensure indirect purchasers have full benefit of the right to sue for antitrust violation. Then “[c]oordination of recovery for all those affected by price fixing might be achieved by * * * embracing all direct and indirect purchasers, with damages to be allocated” accordingly (Givens, Supp Practice Commentaries, McKinney’s Cons Laws of NY, Book 19, General Business Law § 340, 2001 Pocket Part, at 209). While this reasoning clearly favors permitting a class claim, this court cannot ignore that since enacting the Donnelly Act, the New York State Legislature has twice considered the indirect purchaser’s right to bring suit. Yet, no express languages in the statute, as required by CPLR 901 (b), has been adopted which authorizes the maintenance of a class action. Omissions in a statute cannot be supplied by construction (see, McKinney’s Cons Laws of NY, Book 1, Statutes § 363; Matter of Kessel v Dodd,
Even assuming legal authority supports an antitrust class action claim, plaintiffs’ allegations are limited to those events which occurred within the applicable four-year statute of limitation under General Business Law § 340 (5). Where a statute instructs that it is “to take effect immediately,” then it is interpreted not to have a retroactive operation or effect (Murphy v Board of Educ.,
Here, the Act states that the amendment’s provisions are “to take effect immediately.” (General Business Law § 340 [6], L 1998, ch 653, § 1.) The defendants claim that statutory amendments will have no retroactive application unless the language of the statute clearly indicates that it shall receive contrary interpretation. Section 340 (6) includes no such provision (McKinney’s Cons Laws of NY, Book 1, Statutes § 52). In Majewski, the Court found that a remedial statute, for statute of limitation purposes, is one which creates no new right of action or increases a defendant’s exposure to liability. Because General Business Law § 340 (6) adds a claim that would not otherwise exist, the amendment is not remedial in effect. Moreover, courts interpreting provisions of the General Business Law have rejected retroactive application of amendments creating new private rights of action (see, Burns v Volkswagen of Am.,
Without allegations of events that postdate the 1998 amendment, the plaintiffs’ complaint fails to sufficiently state a claim. To state a claim, plaintiffs must allege the making of an agreement to fix prices, the terms of that agreement, and specific acts committed in furtherance of the agreement (State of New York v Milk Handlers & Processors Assn.,
Because plaintiffs fail to oppose defendants’ motion to dismiss their claims under General Business Law § 349, that claim must also be dismissed.
Accordingly, it is ordered that defendants’ motion is granted and the complaint is dismissed in its entirety.
Notes
Although not relevant here, if plaintiifs’ allegations are true, it would appear that the multi-billion dollar National Tobacco Litigation Settlement (which this court did not approve) was a brilliant slight-of-hand by the tobacco companies. By taking the additional price per pack for cigarettes from smokers and transferring that money to the settling state governments and the lawyers who represented those governments, as the settlement amount, these defendants have not been paying the settlement out of their own money, they are merely circulating money from smokers to state governments. It would be as if a retailer found to have overcharged his customers was permitted to repay his customers out of future overcharges.