Sanchez v. Liggett & Myers, Inc.

UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT

No. 98-40679

SAN JUANITA SANCHEZ; REYES H. SANCHEZ,
Individuals Heirs at Law, Statutory Beneficiaries, and
Legal Representatives of and on behalf of the
Estate of Reyes R. Sanchez, Deceased,

Plaintiffs - Appellants,

VERSUS

LIGGETT & MYERS, INCORPORATED; ET AL,

Defendants,

LIGGETT & MYERS, INCORPORATED; BROOKE GROUP, LIMITED;
LIGGETT GROUP, INCORPORATED; BROWN & WILLIAMSON TOBACCO
CORPORATION, Individually and as Successor by merger
to the American Tobacco Company; BRITISH AMERICAN TOBACCO
COMPANY, LIMITED; BATUS HOLDINGS, INCORPORATED; PHILIP
MORRIS, INCORPORATED; R. J. REYNOLDS TOBACCO COMPANY;
LORILLARD TOBACCO COMPANY; UNITED STATES TOBACCO COMPANY;
HILL & KNOWLTON, INCORPORATED; THE COUNCIL FOR TOBACCO
RESEARCH USA, INCORPORATED, Individually and as successor
to the Tobacco Industry Research Committee; THE TOBACCO
INSTITUTE, INCORPORATED; SHOOK, HARDY & BACON, P.C.,

Defendants - Appellees.

Appeal from the United States District Court
for the Southern District of Texas
August 25, 1999
Before EMILIO M. GARZA, DeMOSS, and PARKER, Circuit Judges.

DeMOSS, Circuit Judge:

Reyes R. Sanchez began smoking in or around 1957, at the age of

ten. Over the course of his life he smoked several different brands

of cigarettes. In 1995, Sanchez was diagnosed with throat cancer.

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He died in 1996. The plaintiffs in this case, referred to herein as

“Sanchez Family,” are Sanchez’s estate, surviving spouse, and heirs

or statutory beneficiaries at law. The defendants, referred to

herein as “Tobacco Companies,” are cigarette manufacturers and

companies engaged in various tobacco industry related activities.

The Sanchez Family brought this lawsuit in state court, invoking

the law of Texas and alleging, among other things, intentional fraud

and misrepresentation, breach of implied warranty, violation of the

Texas Deceptive Trade Practices Act (DTPA), and conspiracy -- each

charge relating to the Tobacco Companies’ alleged knowledge and

concealment of information about the health hazards of smoking

cigarettes. The case was removed to federal court on the basis of

complete diversity among the parties, see 28 U.S.C. § 1332. The

Tobacco Companies sought judgment on the pleadings pursuant to Fed.

R. Civ. P. 12(c), claiming that the Sanchez Family’s claims are

precluded by both Tex. Civ. Prac. & Rem. Code § 82.004 and the

Federal Cigarette Labeling and Advertising Act, 15 U.S.C. § 1331 et

seq. This motion was granted by the district court, which relied on

this Court’s unpublished affirmances of the district court’s previous

dismissals of similar claims on both federal preemption and state

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statutory grounds.1 The Sanchez Family timely appeals. We affirm on

the grounds of the Texas statutory bar.

I.

The Federal Cigarette Labeling and Advertising Act provides:

Preemption

(a) Additional statements

No statement relating to smoking and health,
other than the statement required by section 1333 of
this title, shall be required on any cigarette
package.

(b) State regulations

No requirement or prohibition based on smoking
and health shall be imposed under State law with
respect to the advertising or promotion of any
cigarettes the packages of which are labeled in
conformity with the provisions of this chapter.

15 U.S.C. § 1334. Section 1334(b) prohibits states from imposing

legal requirements pertaining to the advertising or promotion of

cigarettes. The application of this preemptive provision is only of

concern if state law purports to provide a cause of action that is

inconsistent with the federal labeling scheme. We can pretermit an

extended preemption analysis if we determine that the law of Texas,

which we must apply in exercising our diversity jurisdiction, does

1
See Hulsey v. American Brands, Inc., No. 97-40694 (5th
Cir. Mar. 2, 1998), aff’g No. C-97-003, 1997 WL 271755 (S.D. Tex.
Apr. 7, 1997), cert. denied, 119 S. Ct. 162 (1998); Oglesby v.
American Brands, Inc., No. 97-40695 (5th Cir. Mar. 2, 1998), aff’g
No. C-97-005, 1997 WL 881214 (S.D. Tex. Apr. 7, 1997), cert.
denied, 119 S. Ct. 161 (1998); Whirley v. American Brands, Inc.,
No. 97-40695 (5th Cir. Mar. 2, 1998), aff’g No. C-97-009, 1997 WL
881215 (S.D. Tex. Apr. 7, 1997), cert. denied, 119 S. Ct. 162
(1998).

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not purport to provide any right or remedy on the grounds alleged by

the Sanchez Family. We therefore proceed directly to an analysis of

the prohibition Texas has imposed on these claims.

II.

The Tobacco Companies stand on solid state-law ground for

opposing this lawsuit. In 1993 the Texas legislature adopted the

following statutory provision:

In a products liability action, a manufacturer or
seller shall not be liable if:

(1) the product is inherently unsafe and the
product is known to be unsafe by the ordinary
consumer who consumes the product with the
ordinary knowledge common to the community; and

(2) the product is a common consumer product
intended for personal consumption, such as
sugar, castor oil, alcohol, tobacco, and butter,
as identified in Comment i to Section 402A of
the Restatement (Second) of Torts.

Tex. Civ. Prac. & Rem. Code Ann. § 82.004(a) (Vernon 1997). A key

definition adopted at the same time states:

“Products liability action” means any action against
a manufacturer or seller for recovery of damages
arising out of personal injury, death, or property
damage allegedly caused by a defective product
whether the action is based in strict tort liability,
strict products liability, negligence, mis-
representation, breach of express or implied
warranty, or any other theory or combination of
theories.

Tex. Civ. Prac. & Rem. Code Ann. § 82.001(2) (Vernon 1997). These

statutory provisions took effect on September 1, 1993 -- before

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Sanchez was diagnosed with cancer on April 12, 1995, before he died

on May 27, 1996, and before this lawsuit was filed on April 10, 1997.2

The Tobacco Companies contend they are not liable to the Sanchez

Family because this is a “products liability action” in which the

product (cigarettes) are unsafe and known to be unsafe by the

community. The Sanchez Family argues that despite § 82.004, American

Tobacco Co., Inc. v. Grinnell, 951 S.W.2d 420 (Tex. 1997), holds

that, in order to avoid liability, the tobacco companies are required

to prove a “common knowledge defense” to the Family’s theory of

failure to warn as to the addictive effect of tobacco use. But the

Grinnell lawsuit was filed before September 1, 1993 (the effective

date of § 82.004), and the Texas Supreme Court’s decision was

governed by common law, not by § 82.004(a).

Likewise, our dissenting colleague reads Grinnell as "a

controlling statement of law which disposes of the precise issue

presented by this case." We disagree. The precise issue in this

case is the effect of § 82.004(a) on the claims of the Sanchez

Family. In Grinnell, the only occasion for the Texas Supreme Court

to mention § 82.004(a) was in footnote 2 of that opinion, wherein

that court noted: (i) that § 82.004(a) was not applicable in

2
Act of Mar. 4, 1993, 73d Leg., R.S., ch. 5, § 3(a)
provides:

Sections 82.002 through 82.004, Civil Practice and
Remedies Code, as added by this Act, apply only to
a cause of action commenced on or after the
effective date of this Act. A cause of action
commenced before the effective date of this Act is
governed by the law in effect at the time the
action accrued, and that law is continued in effect
for that purpose.

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Grinnell; (ii) that § 82.004(a) was applicable to cases filed after

September 1, 1993; and (iii) that § 82.004(a) was a legislative

codification of comments (i) and (j) of § 402A of the Restatement

(Second) of Torts. There is no holding of any kind by the Texas

Supreme Court in this footnote 2.

The two holdings made by the Texas Supreme Court in Grinnell on

the issue of "common knowledge" were:

a. "We conclude that the general health dangers
attributable to cigarettes were commonly known as a
matter of law by the community when Grinnell began
smoking," 91 S.W.2d at 429; and

b. "We also hold that American did not establish as
matter of law that the specific danger of addiction
from smoking was knowledge common to the community,"
951 S.W.2d at 431.

The Sanchez Family and our dissenting colleague now argue that the

distinction found by the Texas Supreme Court in Grinnell between

"common knowledge as to general health dangers" and "common knowledge

as to the specific danger of addiction from smoking" should be the

basis for determining that the Sanchez Family is not precluded by

§ 82.004(a) from seeking to recover for failure to warn of the

addictive nature of cigarettes. We decline to make such distinction

and determination. First, the plain, clear language of § 82.004(a)

says nothing about such a distinction. Neither the words "addiction"

nor the words "addictive effect" appear anywhere in § 82.004(a).

Second, the legislative history of the adoption of § 82.004(a)

clearly demonstrates that the Texas legislature declined to include

the issue of addictive effect. While Senate Bill 4 (the legislative

vehicle which ultimately became the Act) was pending on the floor of

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the Texas House of Representatives, an amendment was offered to

insert the following subsection in § 82.004:

(b) Because tobacco is an addictive substance and,
especially in the case of a minor, may lead to a life
long addiction, this section does not apply to a
products liability action brought by a claimant for
damages arising from the use of tobacco if the
claimant began using tobacco before the earlier of:

(1) The claimant’s 18th birthday; or

(2) The removal of the disabilities of minority
by the claimant.

The House sponsor of Senate Bill 4 moved to table this amendment and

the motion to table prevailed.3 In our view, the rejection of this

amendment establishes the clear legislative intent that the only

requirement of § 82.004(a) as to common knowledge is that the product

be "known to be unsafe." The Texas Supreme Court in Grinnell

expressly held that this test was satisfied as a matter of law as to

tobacco. Likewise, our Court has previously noted that "the dangers

of cigarette smoking have long been known to the community." Allgood

v. R.J. Reynolds Tobacco Co., 80 F.3d 163, 172 (5th Cir. 1996). We

hold therefore that the clear language of § 82.004(a) has been

satisfied as a matter of law.

The Sanchez Family also argues that their complaint is not

covered by the statute because it is not a “products liability”

claim. The Family contends its claims of fraud, conspiracy, and DTPA

violation (Tex. Bus. & Com. Code Ann. §§ 17.46, 17.50 (Vernon Supp.

1999)) are not “products liability” claims. That might be so in the

traditional sense of “products liability” as a legal term of art,

3
See H.J. of Tex., 73d Leg., R.S. 457-58 (1993).

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see, e.g., Black’s Law Dictionary 1209 (6th ed. 1990), but the

definition in § 82.001(2) plainly forecloses this argument. As

quoted earlier in this opinion, the term "products liability action"

means “any action . . . arising out of personal injury, death, or

property damage allegedly caused by a defective product whether the

action is based in strict tort liability, strict products liability,

negligence, misrepresentation, breach of express or implied warranty,

or any other theory or combination of theories.” Tex. Civ. Proc. &

Rem. Code Ann. § 82.001(2) (Vernon 1997). This action arises out of

Mr. Sanchez’s allegedly wrongful death and claims that are derivative

thereof. All theories of recovery asserted by the Sanchez Family are

covered, with the exceptions of manufacturing defect and breach of

express warranty, see Tex. Civ. Prac. & Rem. Code Ann. § 82.004(b)

(Vernon 1997), which are not alleged by the Sanchez Family. Finally,

the Sanchez Family clearly alleged that Mr. Sanchez’s death was

caused by smoking cigarettes.

III.

The Sanchez Family also points out that defendants other than

manufacturers and sellers cannot claim protection under the statute.

But the Sanchez Family cannot prove causation for any parties but the

manufacturers and sellers of the cigarettes Mr. Sanchez smoked. A

claim of intentional fraud and misrepresentation requires reliance on

a misrepresentation of fact and proof of causation of injuries

flowing from that reliance. See, e.g., Rubalcaba v. Pacific/Atlantic

Crop Exchange, Inc., 952 S.W.2d 552, 555-56 (Tex. App.--El Paso 1997,

no writ). The circumstances constituting fraud must be pleaded with

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particularity. See Fed. R. Civ. P. 9(b). The complaint states

merely that “Mr. Sanchez had no way to determine the falsity of these

representations and material omissions, and he reasonably relied upon

such misrepresentations to his detriment.” There is no particular-

ized allegation that a certain misrepresentation was relied upon by

Mr. Sanchez, nor that he actually relied on any misrepresentation, so

the Family has failed to state a fraud claim. See Allgood, 80 F.3d

at 171. A breach of implied warranty claim requires an underlying

“sale,” see Tex. Bus. & Com. Code Ann. § 2.314 (Vernon 1994), and

there is no sale involving the non-manufacturer defendants. See

Allgood, 80 F.3d at 170. A DTPA claim requires an underlying

consumer transaction; there must be a nexus between the consumer, the

transaction, and the defendant’s conduct. See Amstadt v. U.S. Brass

Corp., 919 S.W.2d 644, 650 (Tex. 1996). There is no consumer

transaction involving the non-manufacturer defendants. Civil

conspiracy requires liability for an underlying substantive tort, and

there is no such substantive liability for the non-manufacturer

defendants. See, e.g., Schlumberger Well Surveying Corp. v. Nortex

Oil & Gas Corp., 435 S.W.2d 854, 856 (Tex. 1968).

IV.

Texas state law definitively precludes this lawsuit. There is,

therefore, no need to address the preemption question presented by

this case. The judgment below is AFFIRMED.

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ROBERT M. PARKER, Circuit Judge, dissenting:

The majority inexplicably ignores the controlling statement of

law from the Supreme Court of Texas in American Tobacco Co., Inc. v.

Grinnell, 951 S.W.2d 420 (Tex. 1997), which disposed of the precise

issue presented by this case and, instead relies on this court’s

earlier wrong Eire guess in Allgood v. R.J. Reynolds Tobacco Co., 80

F.3d 168 (5th Cir. 1996), and grants the Tobacco Companies a common

knowledge defense to all of Sanchez’s claims as a matter of law. My

obligation to stare decisis compels this dissent.

Because jurisdiction over this action is based on diversity of

citizenship, we are bound to apply the substantive law of the State

of Texas and have been for sixty-one years. See Rogers v. Corrosion

Prods., 42 F.3d 292, 295 (5th Cir. 1995). If the state through its

highest court has spoken clearly in interpreting its law, it is not

within the authority of this Court to reinterpret that law. See

Ladue v. Chevron U.S.A., Inc., 920 F.2d 272, 274 (5th Cir.1991).

Further, we disregard our own earlier interpretation of state law

when there is an intervening decision on the issue by the state’s

highest court. See Federal Deposit Ins. Corp. v. Abraham, 137 F.3d

264, 269 (5th Cir. 1998).

The Texas statute provides that a manufacturer or seller shall

not be liable in a products liability action if “the product is

inherently unsafe and the product is known to be unsafe by the

ordinary consumer who consumes the product with the ordinary

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knowledge common to the community[.]” TEX. CIV. PRAC. & REM. CODE ANN.

§ 82.004(a)(1)(Vernon 1997). The Texas Supreme Court in Grinnell

held that “the general ill-effects of smoking were commonly known

when Grinnell started smoking in 1952. However, we also hold that

American did not establish that the addictive quality of cigarettes

was commonly known . . . in 1952.” Grinnell, 951 S.W.2d at 428

(emphasis added)(citing Austin v. Tennessee, 179 U.S. 343

(1900)(observing that “a belief in [cigarettes’] deleterious effects,

particularly upon young people, has become very general, and

communications are constantly finding their way into the public press

denouncing their use as fraught with great danger . . . .”); Kessler,

et al., The Legal and Scientific Basis for FDA’s Assertion of

Jurisdiction Over Cigarettes and Smokeless Tobacco, 277 J.A.M.A. 405,

406 (1997)(pointing out that “before 1980 . . . no major public

health organization had determined that nicotine was an addictive

drug”)). The Tobacco Companies are hard pressed to take the position

that the addictive nature of cigarettes was common knowledge in the

1950's since they have steadfastly denied that cigarettes are

addictive and, even today, only “acknowledge findings” about

addictiveness. See Galligan, A Primer on Cigarette Litigation Under

the Restatement (Third) of Torts: Products Liability, 27 Sw. U. L.

Rev. 487, 496 & n.54 (1998).

The majority declines to apply Grinnell because “the Grinnell

lawsuit was filed before September 1, 1993, . . . [and] was governed

by common law, not by § 82.004(a).” The question before the Grinnell

court was indeed governed by pre-statute Texas law, that is,

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Restatement (Second) of Torts § 402A cmt. I and j (1965). See

Grinnell, 951 S.W.2d at 427. However, Grinnell noted that § 82.004,

applicable to cases (such as this one) filed after September 1, 1993,

was a codification of § 402A, comments I and j. See id. at 427 n.2.

It is therefore clear that the Texas Supreme Court’s discussion in

Grinnell of the common knowledge defense controls our interpretation

of § 82.004.

The majority’s assertion that the general health hazards of

smoking were common knowledge when Sanchez began smoking in 1957 is

correct under Grinnell. However, because the Sanchez Family asserted

claims based on the addictive quality of tobacco, as well as the

general health hazards of smoking, the common knowledge defense does

not dispose of this entire case. The majority lumps addiction claims

with general health claims even though the Texas Supreme Court has

held squarely that it is not a general health claim subject to the

common knowledge defense.4 The majority opinion, in effect, makes a

fact finding that the addictive nature of cigarettes is common

4
The Texas legislature’s consideration and rejection of an
amendment that would have preserved a products liability claim for
an individual who began smoking as a minor does not justify the
majority’s decision to substitute it’s judgment for the law of
Texas expressed by Grinnell. First, the proposed amendment
indicates only that the author of the amendment recognized the
addictive properties of tobacco in 1992. This sheds no light on
the question of whether tobacco’s addictiveness was common
knowledge in the 1950's. In fact, it may be read to indicate that
the majority of the Texas legislature in the early 1990's did not
yet understand that tobacco was addictive. Second, the Texas
Supreme Court, speaking after the legislative debate over the
parameters of § 82.004(a) that the majority finds instructive,
specifically rejected the majority’s conclusion that both the
addictiveness and the general health hazards of tobacco were common
knowledge in the 1950's.

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knowledge. The most amazing part of it is that it is a fact finding

with which both the Texas Supreme Court and the Tobacco Companies

disagree.

Whatever happened to Federalism?

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