User talk:Agradman/Hawaii tobacco settlement/more tobacco

UNITED STATES COURT OF APPEALS FOR THE FOURTH CIRCUIT

290 F.3d 720; 2002 U.S. App. LEXIS 9648

April 3, 2002, Argued May 22, 2002, Decided

United States, a person who cannot pay his or her medical bills may be eligible for financial assistance under the MEDICAID program. If so, and if the state in which the person lives participates in the federal MEDICAID program, both the federal government and the government of his or her state contribute through the program to pay some of the medical bills. See 42 U.S.C.A. §§ 1396, 1396a-1396u (1992 & West Supp. 2001). West Virginia, North Carolina, and South Carolina all participate in the MEDICAID [**5] program and receive federal funds under the program. See N.C. Gen. Stat. § 108A-54 (1999); W. Va. Code Ann. §§ 9-1-1 to 9-2-3 (Michie 1998 & Supp. 2001); S.C. Code Ann. § 43-7-20, 43-7-410 to 43-7-460 (Law. Co-op. 1985 & Supp. 2001). In some instances, third parties are liable for the health-care expenses of MEDICAID patients, through, for example, insurance, tort liability, or a court order based on familial obligation. [HN1] To obtain federal assistance with MEDICAID costs, a state must require MEDICAID recipients to assign any rights they possess against such third parties to the state, and must make reasonable efforts to collect on all third-party claims that are assigned. See 42 U.S.C.A. §§ 1396a(a)(25), 1396k(a) (West 1992 & Supp. 2001). In keeping with these federal requirements, West Virginia, North Carolina, and South Carolina each mandate such an assignment. See W. Va. Code Ann. § 9-5-11(a) (Michie 1998); S.C. Code Ann. §§ 43-7-420 to 43-7-430 (Law. Coop. Supp. 2001); N.C. Gen. Stat. §§ 108A-57, 108A-59(a) (1999). [HN2] Federal law also governs a participating state's distribution of any recovery on a third-party claim assigned by a MEDICAID [*725]  recipient. [**6] If a state recovers "under an assignment," payments from third parties go first to the state up to its relevant MEDICAID expenses; then to the federal government, up to its relevant MEDICAID expenses (minus an incentive payment to encourage the state to collect, see 42 C.F.R. § 433.153 (2001)); and finally, if any funds remain, to the patient who assigned the claim. See 42 U.S.C.A. § 1396k(b); see also 42 C.F.R. § 433.154 (2001). A state must distribute any remainder to the individual MEDICAID recipient. See 42 U.S.C.A. § 1396k(b) (requiring that after both governments cover all of their expenses, "the remainder of such amount collected shall be paid to such individual" (emphasis added)). B. In the 1998 settlement of the tobacco litigation, each settling state recovered a substantial amount of money from tobacco companies. In many of the settling states, including West Virginia, North Carolina, and South Carolina, MEDICAID patients then brought suit against state officials. 1 The patients contend that at least part of the tobacco settlement constituted a MEDICAID [**7] recovery subject to the statutory framework outlined above. Therefore, they argue, state officials should distribute excess funds recovered under the settlement to them. Before analyzing these contentions, we describe the nature of the state lawsuits against tobacco companies and the settlement reached.

1  Every federal appellate court to consider similar patients' claims has rejected them. See Greenless v. Almond, 277 F.3d 601 (1st Cir. 2002); Tyler v. Douglas, 280 F.3d 116 (2d Cir. 2001); Harris v. Owens, 264 F.3d 1282 (10th Cir. 2001); McClendon v. Ga. Dep't of Cmty. Health, 261 F.3d 1252 (11th Cir. 2001); Floyd v. Thompson, 227 F.3d 1029 (7th Cir. 2000); see also Watson v. Texas, 261 F.3d 436 (5th Cir. 2001) (addressing similar claims based on a separate settlement between Texas and the tobacco companies); Table Bluff Reservation (Wiyot Tribe) v. Philip Morris, Inc., 256 F.3d 879 (9th Cir. 2000) (ruling that Indian tribes lacked standing to challenge the tobacco settlement). The district courts have also uniformly rejected such claims in cases too numerous to list. [**8] 1. In the 1990s, nearly all the states sued major tobacco companies for harm arising from the deliberate concealment of the health risks posed by tobacco. 2 In their complaints, West Virginia, North Carolina, and South Carolina all cited the medical costs of treating smoking-related injuries as a major source of damages.

2  The states and tobacco companies participating in the tobacco settlement have varied over time. See, e.g., Star Scientific, Inc. v. Beales, 278 F.3d 339 (4th Cir. 2002) (considering the claims of a tobacco company facing a choice as to whether to participate in the settlement); infra (noting North Carolina's decision to join the settlement after it had been executed). Because nothing turns on these details in these appeals, we have not attempted to specify which tobacco companies and states were involved at any given point. West Virginia filed suit on September 20, 1994. The state's third amended complaint lists a number of tobacco harms to the state, including [**9] its expenses in treating tobacco-related health problems, its expenses in countering tobacco advertising aimed at young people, products-liability claims, and antitrust violations. The complaint includes fourteen counts; several discuss damage to the state other than health-care costs, such as the cost of public campaigns about the dangers of tobacco, and pursue relief other than the money the state had spent on health-care costs. South Carolina filed suit on May 12, 1997. Preliminary language in its amended [*726]  complaint describes only the medical expenses the state had incurred. The complaint includes sixteen counts. The only harm to the state discussed in any of the counts is the cost of medical treatment for tobacco-related health problems. However, South Carolina did seek an order requiring the tobacco companies to fund a campaign of public education about smoking and health, as well as orders barring them from marketing and sales practices aimed at minors and requiring them to disclose information related to tobacco. North Carolina filed suit on December 21, 1998. (North Carolina's lawsuit actually followed the execution of the settlement between the tobacco companies and many [**10] other states by several weeks; on the same day, the state both filed suit and immediately dismissed its suit in order to join the settlement.) The complaint included two state-law claims, for restraint of trade and unfair commercial practices. The state cited the financial harm that the shrinking tobacco market inflicted on its communities that depended on growing tobacco and health-care costs incurred in treating smoking-related illnesses. It sought damages "for the past and future medical costs paid by North Carolina to medical assistance beneficiaries, state employees, and others for treatment of tobacco-related illnesses." The state also sought injunctions and "mandatory orders" to bar tobacco advertising and tobacco-related conspiracy and to provide funds for public education about the dangers of tobacco and for financial assistance to "tobacco-dependent communities." 2. Late in 1998, without admitting liability, the tobacco companies settled the claims of West Virginia, North Carolina, South Carolina, and most other states. In a document entitled "Master settlement agreement" (MSA), the companies agreed to pay billions of dollars to the states in future installments. Under [**11] the MSA, settlement funds went into escrow, with Citibank as the escrow agent. The total amounts involved cannot be fixed exactly, but the patients pursuing these cases allege that West Virginia expects to receive $ 1.933 billion, South Carolina $ 2.3 billion, and North Carolina $ 4.6 billion, and that these payments exceed what each state has paid and expects to pay for MEDICAID costs related to tobacco. In return for these funds, the states released their rights to pursue a wide range of claims against the tobacco companies. The states released the companies from liability based on their past conduct and from future monetary liability arising solely from use of or exposure to tobacco. Some of the claims released by the states did not relate to health-care costs; the MSA covered all claims "directly or indirectly based on, arising out of or in any way related, in whole or in part, to (A) the use, sale, distribution, manufacture, development, advertising, marketing, or health effects of, (B) the exposure to, or (C) research, statements or warnings regarding, Tobacco Products." West Virginia, North Carolina, and South Carolina have all received payments under the MSA. A South Carolina [**12] statute assigns all MSA receipts to a Tobacco Settlement Revenue Authority created by the statute, which issues bonds (though not to the state) and pays their proceeds to various trust funds. S.C. Code Ann. § 11-49-50, 11-49-70 (Law. Co-op. Supp. 2001). Similarly, a North Carolina statute assigns 50% of that state's MSA funds to a non-profit corporation called The Golden L.E.A.F. (Long-term Economic Advancement Foundation) to provide financial assistance to tobacco-dependent areas of North Carolina. See 1999 N.C. Sess. Laws 2, [*727]  available at http://www.ncga.state.nc.us/SessionLaws/1999_/sl19990002/default.htm (last visited April 11, 2002). In 1999, after the tobacco settlement had been reached, CONGRESS passed an amendment to federal MEDICAID law that specifically addresses the MSA, in a section of an emergency appropriations act, entitled "Prohibition on Treating Any Funds Recovered From Tobacco Companies as an Overpayment for Purposes of MEDICAID." See 1999 Emergency Supplemental Appropriations Act, Pub. L. No. 106-31, 113 Stat. 57, 103-04, codified at 42 U.S.C.A. § 1396b(d)(3)(B) (West Supp. 2001). CONGRESS addressed the tobacco settlement [**13] in two provisions that altered the usual manner for distribution of recovery on third-party claims. See 42 U.S.C.A. § 1396b(d)(3)(B)(i, ii). The first provision exempts the tobacco settlement from the usual statutory payment scheme for state reimbursement of federal MEDICAID costs. [HN3] Ordinarily, a state reimburses the federal government by designating the federal share of a recovery as part of an "overpayment" on the federal obligations under MEDICAID, to be repaid to the federal government. See 42 U.S.C.A. §§ 1396b(d)(2)(A), (2)(B), (3)(A) (West Supp. 2001). Under the 1999 amendment, however, CONGRESS directed that this procedure shall not apply to any amount recovered or paid to a State as part of the comprehensive settlement of November 1998 between manufacturers of tobacco products. . . and State Attorneys General [the MSA], or as part of any individual State settlement or judgment reached in litigation initiated or pursued by a State against one or more such manufacturers.

42 U.S.C.A. § 1396b(d)(3)(B)(i). This provision, which for ease of reference we designate "clause (i)," [**14]  effectively eliminates any federal right to a share of the proceeds of the MSA or certain other tobacco settlements. [HN4] The second provision, which is crucial to our disposition of these appeals, states that, except for litigation costs proscribed by 42 U.S.C.A. § 1396b(i)(19), a State may use amounts recovered or paid to the State as part of a comprehensive or individual settlement, or a judgment, described in clause (i) for any expenditures deter mined appropriate by the State.

42 U.S.C.A. § 1396b(d)(3)(B)(ii). We refer to this provision herein as "clause (ii)."

C. By April 26, 2000, MEDICAID patients suffering from tobacco-related illnesses had filed the three similar amended complaints against officials in West Virginia, North Carolina, and South Carolina, which form the basis for these appeals. 3 In these complaints, the patients seek a share of the MSA funds received by their respective states, under the theory that the MEDICAID recovery provisions described above apply to the MSA settlement, and that they have a right to payments in [*728]  excess of the states' actual medical expenses. Specifically, proceeding under [**15] 42 U.S.C.A. § 1983, the MEDICAID patients allege that state officials violated provisions of the MEDICAID statute that require states to disburse excess funds to individual recipients, see 42 U.S.C.A. § 1396k(b), and make reasonable efforts to pursue all third-party liability on behalf of individual patients. See 42 U.S.C.A. § 1396a(a)(25). They further allege that these asserted deprivations violate the Due Process Clause and the Takings Clause.

3  For ease of reference, we often refer within to the individual state defendants as "the states." The patients in all three cases also filed suit against Citibank, the escrow agent for the MSA, and the North Carolina patients sued the nonprofit organization that received a share of the state's funds from the tobacco settlement, The Golden L.E.A.F. Both The Golden L.E.A.F. and Citibank make a number of arguments on the merits in their own behalf. Because we rule that the patients have no claim at all to the MSA funds paid to the states, and because the patients' claims against the non-state defendants are derivative of their other claims, we need not address the specific arguments made by The Golden L.E.A.F. or Citibank.