On June 28, 1996, four tobaccco companies filed this suit against Connecticut Attorney General Richard Blumenthal to prevent him from filing suit against the tobacco companies. Blumenthal is planning to file a suit against the companies seeking to recoup state funds spent on smoking-related illnesses.

PHILIP MORRIS INCORPORATED,
R.J. REYNOLDS TOBACCO COMPANY,
BROWN & WILLIAMSON TOBACCO
CORPORATION,
LORILLARD TOBACCO COMPANY,
PLAINTIFFS

VS.

RICHARD BLUMENTHAL,
ATTORNEY GENERAL OF
CONNECTICUT,
DEFENDANT

Civil Action No.:396CV01121

June 28, 1996

THE COMPLAINT

Plaintiffs, by their undersigned attorneys, allege upon knowledge as to themselves, and otherwise upon information and belief, as follows:

Nature of the Action

1. By this action, plaintiffs seek injunctive relief as well as a declaration pursuant to the federal Declaratory Judgments Act, 28 U.S.C 2201 et seq.. that an actual controversy exists between the plaintiffs and defendant and that the lawsuit that has been imminently threatened by defendant against plaintiffs, purportedly to recover certain Medicaid payments made by the State of Connecticut, would violate plaintiffs' rights under the United States Constitution and federal statutes.

2. This action seeks to prevent defendant from singling out a category of out-of-state manufacturers and imposing upon them a retroactive, unprecedented, and devastating financial burden in an effort significantly to impede the channels of interstate commerce to a lawful product - cigarettes - at the expense of plaintiffs' federal constitutional and statutory rights. Jurisdiction and Venue

3. This Court has jurisdiction over this action pursuant to 28 U.S.C. 1331, 28 U.S.C. 1343, and 28 U.S.C. 1367. Venue is proper in this District under 28 U.S.C. 1391(b).

Parties

4. Plaintiff Philip Morris Incorporated, a manufacturer of cigarettes, is a Virginia corporation whose principal place of business is 120 Park Avenue, New York, New York 10017.

5. Plaintiff RJ. Reynolds Tobacco Company, a manufacturer of cigarettes, is a New Jersey corporation whose principal place of business is 4th and Main Street, Winston-Salem, North Carolina 27102.

6. Plaintiff Brown & Williamson Tobacco Corporation, a manufacturer of cigarettes, is a Delaware corporation whose principal place of business is 1500 Brown & Williamson Tower, Louisville, Kentucky 40202.

7. Plaintiff Lorillard Tobacco Company, a manufacturer of cigarettes, is a Delaware corporation whose principal place of business is 1 Park Avenue, New York, New York 10016.

8. Defendant Richard Blumenthal is the Attorney General of Connecticut.

Background

9. For months, defendant has been preparing to bring on behalf of the State of Connecticut a lawsuit (the "Threatened Lawsuit") seeking hundreds of millions of dollars from plaintiffs, which are cigarette manufacturing companies that are incorporated and have their principal place of business outside of Connecticut. The theory of the Threatened Lawsuit is that, under various provisions and/or principles of state law, plaintiffs should be required - both retroactively and prospectively - to pay for Medicaid payments that Connecticut voluntarily undertook to make to its Medicaid-eligible residents, wholly irrespective of whether plaintiffs would have any liability under established principles of law to pay for the medical care of any actual Medicaid recipient.

10. The Threatened Lawsuit would have purported to have been authorized by a bill which was introduced in the Connecticut General Assembly in the 1996 session but failed to be enacted into law (the "Failed Bill"). The Failed Bill (1996 House Bill 5817) would have provided that:

The state of Connecticut may recover against any manufacturer of tobacco products the full amount of medical assistance provided by the state of Connecticut . . . which is attributable to the use of cigarettes or other tobacco products pursuant to the Title XIX Medicaid program, and reasonable attorney's fees and costs. The state's rights under this section are independent of any rights or causes of action of the recipient or applicant. In an action brought pursuant to this section, the issue of causation may be proven by epidemiological studies or statistical evidence and the contributory negligence. comparative negligence or assumption of risk of the applicant or recipient shall not bar recovery nor diminish the award of damages. The portion of the costs of medical assistance provided by the state of Connecticut which are attributable to the manufacturer of tobacco products shall be presumed to be equivalent to the portion of total sales, in this state, of such product that are attributable to the manufacturer for the period of time for which reimbursement is sought. (emphasis added) The Failed Bill contained the following "Statement of Purpose": "To authorize the Attorney General to bring an action against any manufacturer of tobacco products to recover the costs of medical assistance that is attributable to the use of cigarettes or other tobacco products." (emphasis added)

11. Notwithstanding that the Failed Bill - which on its face would have purported to "authorize" the Attorney General to bring the Threatened Lawsuit-was not enacted into law, defendant nonetheless is proceeding with his plan to bring the Threatened Lawsuit. In his testimony before the Judiciary Committee concerning the Failed Bill, defendant proclaimed that the Failed Bill would merely "put in statute the current state of the common law" (emphasis added). According to the defendant's testimony, both the Failed Bill and the "current state of the common law" (as interpreted by defendant) (i) "clearly authorize the Attorney General to bring an action to recoup . . . health care expenses caused by tobacco products"; (ii) "allow the state to prove causation between the tobacco product and the disease by statistical evidence or epidemiological studies"; (iii) "prohibit[ ] the defense of contributory/comparative negligence or assumption of risk of the patient by the tobacco company"; and (iv) "apportion damages among the tobacco industry based on market share of the tobacco companies."

12. Defendant will claim in the Threatened Lawsuit that the State is entitled to recover Medicaid payments from plaintiffs (i) on a retroactive basis, and (ii) without regard to some or all of the elements of proof that any actual Medicaid recipient would be required to establish to recover medical costs from plaintiffs, and some or all of the defenses that plaintiffs would have against any actual Medicaid recipient. This is apparent from, among other things, (i) published reports concerning public statements made by defendant regarding the nature and magnitude of claims that the defendant is planning to assert in the Threatened Lawsuit (as alleged below at 41-47); (ii) the testimony of the Attorney General before the Judiciary Committee on the Failed Bill (quoted in part above at s 11); and (iii) the fact that defendant is acting in concert with Attorneys General of several other states who have brought similar suits, who have all sought to impose liability retroactively and without regard to whether any individual Medicaid recipient would have any claim against any cigarette manufacturer (as alleged below at 14-15).

13. The threatened conduct of defendant violates fundamental principles of federal constitutional law. Plaintiffs are entitled to injunctive relief barring the defendant from bringing, prosecuting, or imposing or enforcing liability pursuant to the Threatened Lawsuit, as well as a declaration that the Threatened Lawsuit violates plaintiffs' federal constitutional and statutory rights.

14. In the past two years, nine similar lawsuits have been brought by the Attorneys General of nine other states: Florida, Mississippi Minnesota, West Virginia, Massachusetts, Louisiana, Texas, Maryland, and Washington. In each of those suits, the Attorneys General have sought to impose liability retroactively - in the Minnesota case, all the way back to 1977 - and have taken the position that liability may be assessed without regard to whether any individual Medicaid recipient would have any claim against any tobacco company. With the assistance of the Attorneys General that have already brought suit and various anti-tobacco groups, defendant is preparing to bring suit as well. On April 1, 1996, the Reuters News Service quoted Attorney General Blumenthal as saying that he was "very close" to bringing suit. And on May 2, 1996, the New York Times reported that Connecticut had publicly "announced [its] plans yesterday to sue the tobacco industry." The New York Times article reported that, according to Attorney General Blumenthal, the suit "would seek hundreds of millions of dollars in damages."

15. Defendant, in preparing to bring the Threatened Lawsuit, is acting in concert with the Attorneys General who have brought similar suits thus far, anti tobacco groups, and others. AS was reported by we States News Service on March 25, 1996, defendant attended the spring meeting of the National Association of Attorneys General to "consult and plot strategy with . . . colleagues who have already filed similar suits."

16. The Threatened Lawsuit violates basic principles of constitutional law under the United States Constitution. The Threatened Lawsuit seeks to impose upon plaintiffs on a retroactive basis massive costs of the Medicaid program that Connecticut has voluntarily chosen to establish, irrespective of traditional principles of law governing the rights and duties of plaintiffs with respect to any actual Medicaid recipient.

17. Innumerable factors may contribute to the costs of Medicaid: inefficiency and/or corruption in the state system; random (and often reckless) individual choices such as driving over the speed limit; the pervasiveness of air pollution; automobiles; handguns; alcohol; unhealthy foods; and so on. Moreover, myriad business decisions and government policies that make individuals unable to rise economically above the Medicaid level contribute substantially to the costs of Medicaid -- for example, low wages, plant closings and job eliminations that leave employees unable to pay their own medical bills. Connecticut's attempt to impose massive costs upon out-of- state cigarette manufacturers without regard to pre-established tort law principles and defenses is arbitrary and violates the United States Constitution.

18. Moreover, notwithstanding the publicly articulated views of many going back a century or more that smoking tobacco is injurious to health, cigarettes have expressly been sanctioned as an article of interstate commerce; have been regulated (but not prohibited); and have been utilized as a revenue-producing vehicle both by the United States Government and the individual states, including Connecticut.

19. Indeed, in 1994 alone, Connecticut generated over $118 million in revenue from state cigarette taxes, and Connecticut has since 1965 (the year the federal Medicaid Act was enacted and the first year Connecticut chose to participate in Medicaid) generated over two billion dollars in state cigarette taxes. Connecticut's retroactive attempt to shift the burden of Medicaid costs it has voluntarily undertaken to make to out-of-state manufacturers of a lawful product that the state has for many years countenanced, regulated and from which it has generated enormous revenues through taxation is unlawful.

20. Congress struck a careful balance in the Federal Cigarette Labeling and Advertising Act of 1965 and its successor, the Public Health Cigarette Smoking Act of 1969, among (i) recognizing the importance of cigarettes to our national-economy and the economies of tobacco growing and manufacturing states by facilitating the sale of cigarettes in interstate commerce; (ii) providing that a warning label be placed on each package of cigarettes; and (iii) allowing individual customers to exercise their personal freedom of choice to smoke or not to smoke. Congress mandated that a warning label be placed on all cigarette packages sold in the United States, but that cigarette packages so labeled could be sold in the United States free of all state "requirements or prohibitions" based on smoking and health with respect to, inter alia. the promotion of cigarettes. In enacting these statutes, Congress expressly stated as one of its purposes that "commerce and the national economy . . . be protected to the maximum extent consistent with [the] declared policy" of "adequately imform[ing] [the public] that cigarette smoking may be hazardous to health." 15 U.S.C. 1331. Subsequently, the Supreme Court has expressly recognized that lawsuits seeking damages constitute "requirements or prohibitions" by the states within the meaning of these federal statutes. See Cipollone v. Liggett Group. Inc., 112 S. Ct 2608 (1992).

21. The potential impact of the Threatened Lawsuit on interstate commerce is enormous and far reaching. The Threatened Lawsuit (like the other similar lawsuits in other states) seeks unlawfully to significantly impede interstate commerce in cigarettes. While the individual states could not constitutionally legislate this result directly, these lawsuits attempt to shift retroactively massive costs of the Medicaid program to plaintiffs and arbitrarily to impose on plaintiffs massive ongoing costs.

22. Even if the provisions of Connecticut Law relied upon by- defendant were construed to apply only prospectively, they would still (as otherwise interpreted by defendant) constitute an improper and illegal burden on interstate commerce by imposing massive ongoing costs upon the plaintiffs. In light of inherent mobility of the American population, the constitutional right to travel and the ability to purchase cigarettes in neighboring states, plaintiffs could not insulate themselves from the draconian liability sought to be imposed by defendant (or the other states in which Attorneys General have brought suit).

23. The Threatened Lawsuit, and the provisions of Connecticut Law relied upon by defendant as interpreted by him, violate plaintiffs' rights under the United States Constitution. As further set forth below, they constitute an improper and illegal attempt by the State to burden interstate commerce, violate plaintiffs' rights under the Due Process Clause, Equal Protection Clause, Taking Clause, and plaintiffs' First Amendment rights. Moreover, the Threatened Lawsuit and the provisions of Connecticut Law relied upon by defendant (as interpreted by him) violate the Supremacy Clause because they are preempted by and inconsistent with the federal Medicaid Act and the Public Health Cigarette Smoking Act of 1969.

24. Plaintiffs are entitled to injunctive relief barring the defendant from prosecuting, imposing or enforcing liability pursuant to the Threatened Lawsuit. Plaintiffs are also entitled to a declaration that the threatened conduct of defendant is in violation of plaintiffs' constitutional rights and federal statutory rights, and that the provisions of Connecticut Law relied upon by defendant, if construed in the manner in which defendant will claim in the Threatened Lawsuit, are unconstitutional.

The Medicaid Program

25. By virtue of the Threatened Lawsuit, defendant seeks to recover from plaintiffs payments voluntarily made by Connecticut under the program established under Title IXX of the Social Security Act, commonly known as the Medicaid Act, 42 U.S.C. 1396 et seq. Under the Medicaid Act, participating states receive federal financial assistance for administering a medical treatment program in accordance with the requirements of the comprehensive federal scheme set forth in the Medicaid Act and regulations promulgated thereunder.

26. Under the Medicaid Act, no state is obligated to participate in the Medicaid program. However, states that choose to participate in the Medicaid program and thus who seek to become eligible for federal fundings must develop a state plan that conforms with the comprehensive federal requirements. The state plan must be approved by the United States Department of Health and Human Services. 42 U.S.C. 1396a, 1396c. Connecticut has since 1965 chosen to participate in the federal Medicaid program.

27. The percentage of federal funds available to each state under the federal Medicaid program varies from state to state based upon a federal formula that takes into account the per capita income of residents of the state as compared to the national average. In 1994, the federal government paid 50% of the funds relating to Connecticut's participation in the Medicaid program, and the federal government pays for some states up to 80% of the funds applicable to their participation.

28. In recognition of the fact that the United States government provides the major source of funding for the Medicaid programs throughout the country, the Medicaid Act and the regulations thereunder create a detailed system for the recovery of monies paid out under the Medicaid program where third parties are found to be liable for their payment.

29. Thus, under the Medicaid Act and the regulations thereunder, a state Medicaid plan must provide that each recipient assign to a duly designated single state Medicaid agency his or her rights to payment for medical care from any third party. See 42 U.S.C. 1396a(a)(45), 1396k; 42 CFR.433.145-.148. The single state agency, as the assignee of those rights, must take reasonable measures to determine the legal liability of third parties to pay for services furnished under the Medicaid plan to any recipient, and must fulfill the requirements of the Medicaid Act and regulations with regard to establishing liability and seeking reimbursement from third parties. See 42 U.S.C. 1396a(a)(25); 42 C R. 433.135-.148.

30. The Medicaid Act and regulations also require that if a state receives reimbursement of Medicaid payments from a liable third party, the state must pay the federal government the applicable federal share of the reimbursement (net of an incentive payment to the state applicable under the regulations). See 42 U.S.C. 1396b(d); 42 C.F.R. 433.140(c); 42 C.F.R. 433.154.

31. Under the applicable regulations, "[i]f the agency learns of the existence of a liable third party after a claim is paid . . . the agency must seek recovery of reimbursement within 60 days after the end of the month it learns of the existence of the liable third party." 42 CF.R. 433.139(d)(2). Reimbursement by the state agency "must be sought unless the agency determines that recovery would not be cost effective." 42 CFR. 433.139(d)(3).

32. If the state agency fails to fulfill these or any of the other requirements with regard to establishing liability and seeking reimbursement from third parties, it loses its right to federal financial participation in Medicaid payments. 42 C.F.R. 433.140(a)(1). Yet, despite this severe consequence for failing promptly to seek reimbursement from a third party, and despite widespread and longstanding public allegations that smoking leads to increased health care costs, the State of Connecticut has never in the over 30 years since the Medicaid Act was enacted sought to recover a single Medicaid payment from a cigarette manufacturer, or to bring any lawsuit similar to the Threatened Lawsuit against any third party purporting to act in a capacity "independent" of the rights of actual Medicaid recipients. Nor has any such suit ever been authorized anywhere in the country by the United States Department of Health and Human Services, the federal agency responsible for administering the Medicaid Act and regulations.

33. It is plain from the face of the Medicaid statute and the applicable regulations - and is confirmed by the actions of the state and federal agencies for over 30 years in administering the Act-that the federal statutory and regulatory framework contemplates only suits to recover costs of medical assistance from insurers or other third parties who are liable to individual Medicaid recipients. For example, there are detailed federal regulations regarding the establishment of paternity and recovery against out-of-wedlock fathers, and express requirements that recipients (among other things) release their medical records and appear as witnesses in court if needed. E.g., 42 C.F.R 433.147. But nothing in the federal scheme discusses or remotely authorizes mass suits against an industry on any theory (much less one whereby the state could proceed without proof of any elements of an individual Medicaid recipient's legal claim and without being subject to some or all of the defenses applicable to an individual Medicaid recipient's legal claim), or authorizes the states to single out any particular industry for disparate treatment. The Connecticut State Medicaid Plan

34. The Connecticut State Medicaid Plan (the "State Plan") approved by the United States Department of Health and Human Services is not on its face inconsistent with the federal requirements discussed above.

35. Thus, the section of the State Plan entitled "Third Party Liability" states that "The Medicaid Agency meets all requirements of: (1) 42 C.F.R 433.138 and 433.139; (2) 42 C.F.R. 433.145 through 433.148; (3) CF.R. 433.151 through 433.154; [and] (4) Section 1902(a)(25)(H) and (I) of the Act." As discussed above, these sections provide (among other things) for each Medicaid recipient to assign to the state Medicaid agency his or her rights to payment for medical care from any third party; for the state agency to take reasonable measures as assignee of those rights to determine the legal liability of third parties to pay for services furnished under the Medicaid plan to any Medicaid recipient; for the state agency to seek recovery of reimbursement within 60 days after the end of the month it learns of the existence of a liable third party; and for the state to pay the federal government the applicable federal share of any monies recovered from third parties.

36. In addition, an Attachment incorporated by reference into the Connecticut state plan, in a section titled "Guidelines Used in Determining Whether to Seek Reimbursement from Liable Third Parties," states that the Connecticut State Agency responsible for administering the Medicaid program takes action "to recover payments in excess of $500 for claims associated with accident/casualty situations." However, as noted above, in the over 30 years that Connecticut has participated in Medicaid, and despite the widespread public assertions that smoking tobacco is injurious to health, no claim has ever been asserted by the Connecticut State Agency against any plaintifff herein seeking recovery for any medical service provided to any individual that was paid for by Medicaid.

The Applicable Connecticut Statutory Provisions

37. The Connecticut statutory provisions governing third party liability with regard to Medicaid payments likewise are on their face consistent with the federal requirements discussed above. Specifically, Conn. Stat. 17b 265 provides: In accordance with 42 U.S.C. 1396k. the department of social services shall be subrogated to any right of recovery or indemnification which an applicant or recipient of medical assistance or any legally liable relative has against a private insurer or other third party, as defined in 42 C.F.R. 433.136, for the cost of hospitalization, pharmaceutical services, physician services, nursing services and other medical services, not to exceed the amount expended by the department for such care and treatment of the applicant or recipient. An applicant or recipient or legally liable relative, by the act of the applicant or recipient receiving medical assistance. shall be deemed to have made a subrogation assignment and an assignment of claim for benefits to the department.... This subsection shall not be construed to affect the right of an applicant or recipient to maintain an independent cause of action against such third party tortfeasor. (emphasis added) This provision is consistent with the federally mandated scheme set forth in 42 U.S.C. 1396a(a)(4S) and 1396k and 42 C.F.R 433.135- .148 whereby each Medicaid recipient is required to assign his/her rights to the single designated state Medicaid agency, and this state agency is required to act as assignee of those rights to seek third party reimbursement. While this section permits an individual Medicaid recipient to "maintain an independent cause of action" against a third party, it does not permit the state to maintain an "independent cause of action" such as the Attorney General has threatened to bring by virtue of the Threatened Lawsuit, but rather provides for the duly designated state Medicaid agency to proceed by virtue of the assignment/subrogation mechanism mandated by the federal Medicaid Act.

38. Other provisions of Connecticut law likewise make dear that the assignment/subrogation scheme mandated by federal law is the mechanism pursuant to which the state is required to seek to recover Medicaid payments from third parties. Under Conn. Stat. 17b-260, the Connecticut Medicaid program is required to be "administer[ed] in accordance with the requirements" of the federal Medicaid Act. And, under Conn. Stat. 17b-264, state statutory provisions (including the third-party liability/subrogation provision quoted in 37, supra) are extended to the Connecticut Medicaid program only if they are not "inconsistent with federal law and regulations governing Title of the Social Security Amendments of 1965, the federal Medicaid Act and regulations]."

39. The Connecticut State Medicaid Plan that has been approved by the United States Department of Health and Human Services, discussed above in 36, likewise is consistent with these federal requirements. Nothing in the State Plan remotely authorizes a lawsuit by the state "independent" of any right or cause of action assigned to it by any actual Medicaid recipient by virtue of the Medicaid Act and the regulations thereunder. Nor does anything in the State Plan authorize a lawsuit against a particular industry for Medicaid payments, or authorize the Attorney General to bring any lawsuit seeking to recover any Medicaid payments.

40. As noted above ( 10), despite the publicly-stated intention of defendant to bring the Threatened Lawsuit, the Connecticut Legislature has not adopted a proposed bill which would have at least on its face purported to have authorized the defendant to bring an action against tobacco companies seeking to recover Medicaid moneys, and to assert the claims that are threatened to be asserted in the Threatened Lawsuit. Thus, on March 13, 1996, Representative Ellen Scalettar sponsored a new bill (House Bill No. 5817) in the Connecticut General Assembly titled "An Act Concerning Recovery of State Costs for Treatment of Tobacco-Related Diseases." The "Statement of Purpose" of the bill was: "To authorize the Attorney General to bring an action against any manufacturer of tobacco products to recover the costs of medical assistance that is attributable to the use of cigarettes or other tobacco products." (emphasis added) The bill would have purported to give the state rights "independent of any rights or causes of action of the recipient or applicant," and would have provided that "the issue of causation may be proven by epidemiological studies or statistical evidence, and the contributory negligence, comparative negligence or assumption of risk of the applicant or recipient shall not bar recovery nor diminish the award of damages." But, despite testimony by the Attorney General in support of the Bill House Bill No. 5817 was not enacted into law. The Threatened Lawsuit by the Connecticut Attorney General

41. The Connecticut Attorney General has for months been preparing to file the Threatened Lawsuit against plaintiffs to recover Medicaid- related payments, purporting to act not simply as subrogee or assignee of the individual recipients in conformity with the federal requirements under the Medicaid Act and the state statutory provisions incorporating those federal requirements, but in an "independent" capacity.

42. Thus, on March 25, 1996, the Connecticut Law Tribune reported that defendant was "close to bringing suit against the tobacco industry to recover state costs for tobacco-related illnesses-if the General Assembly backs the gambit." This report stated that defendant had "proposed to the Judiciary Committee . . . changes in state law [House Bill 5817, discussed in 10-11, 40, above] that would strengthen Connecticut's position in court by blocking the tobacco industry's defenses in litigation." Defendant was quoted as saying that he was "preparing actively for a lawsuit", and that such a lawsuit would "probably" not be filed "before the [current legislative] session ends [May 8, 1996] and until we know if the General Assembly will approve some or all of the measures we have asked for [in House Bill 5817]."

43. Also on March 25, 1996, the States News Service reported that "Connecticut could file a lawsuit against the major tobacco companies within several weeks, seeking millions in repayment for Medicaid and Medicare expenses for tobacco related illnesses." This report quoted defendant as saying that it was "morally reprehensible" for taxpayers to bear the costs of diseases attributable to smoking, and that the Threatened Lawsuit would seek "to recover for Connecticut taxpayers" health care costs "borne for years now" attributed to smoking, which defendant estimated as "$900 million".

44. On April 1, 1996 the Reuters News Service quoted defendant as saying "I think we are very close" to filing suit.

45. Although the Failed Bill was not enacted into law, defendant nevertheless has publicly announced that he still intends to proceed with the Threatened Lawsuit. Thus, on May 2, 1996, the New York Times reported that Connecticut had "announced [its] plans yesterday to sue the tobacco industry." The New York Times report stated that, according to defendant, the suit "would seek hundreds of millions of dollars in damages."

46. On May 6, 1996, the Connecticut Law Tribune reported that defendant had "filed notices with newspapers across the state, including the Connecticut Law Tribune, seeking proposals for law firms to work with his office on the suit" on a contingency fee basis. The report stated that such proposals were due to be received by the Attorney General on or before May 20, and that the Attorney General "hope[d] to file the suit by late spring or early summer."

47. In a May 27, 1996 article in the Connecticut Law Tribune entitled "A Piece of the Action," it was reported that defendant had received 14 proposals from law firms seeking to be hired on a contingency fee basis to bring the Threatened Lawsuit, and defendant was quoted as saying that he planned "to make a choice among them . . . sometime in June." Plaintiffs' Need for Declaratory and Injunctive Relief

48. Plaintiffs need the declaratory and injunctive relief sought herein in order to settle and protect their reasonable investment-backed expectations and economic rights to continue to manufacture and sell cigarettes in the United States free from unconstitutional and illegal imposition of liability. The Threatened Lawsuit and the provisions of Connecticut Law upon which defendant relies, as interpreted by the defendant, place into question plaintiffs' liability for past, present and future sale of their products in interstate commerce and will (if held to be constitutional) necessarily affect plaintiffs' business on a going-forward basis. Plaintiffs believe that the Threatened Lawsuit and the provisions of Connecticut Law upon which defendant relies as interpreted by defendant are plainly unconstitutional but defendant contends to the contrary. Plaintiffs are entitled to a declaration on this issue so that Plaintiffs' legal rights and any questions about their liability for past, present and future sales are resolved and so that they may determine whether the claim in the Threatened Lawsuit and the provisions of Connecticut Law upon which defendant relies will have any effects on their businesses and, if necessary, take appropriate actions. It is anticipated that defendant will bring the Threatened Lawsuit in state court, and plaintiffs are entitled to have a federal court resolve the federal constitutional and statutory claims raised herein In addition, the Threatened Lawsuit and the provisions of Connecticut Law upon which defendant relies, as interpreted by the defendant, raise the spectre of massive liability. Plaintiffs are entitled to injunctive relief barring defendant from prosecuting, imposing or enforcing liability pursuant to the Threatened Lawsuit. First Claim for Relief

(Commerce Clause)

49. Plaintiffs repeat and reallege paragraphs 1 through 48 hereof.

50. The Threatened Lawsuit and the provisions of Connecticut Law upon which defendant relies, as interpreted by defendant, would impose a severe burden on interstate commerce by shifting to plaintiffs massive costs of the state Medicaid program voluntarily undertaken by Connecticut. The effect of the Threatened Lawsuit (and the similar pending lawsuits in other states) and the provisions of Connecticut Law upon which defendant relies, as interpreted by defendant, would be to impose ongoing massive costs upon the plaintiffs and adversely impact the sale of cigarettes in interstate commerce. In light of the inherent mobility of the American population, the Constitutional right to travel, and the ability to purchase cigarettes in neighboring states, plaintiffs could not insulate themselves from the draconian liability sought to be imposed by defendant (or the Attorneys General of the other states that have brought suit).

51. Moreover, Connecticut has sought to impose these massive costs on cigarettes a product manufactured outside the State of Connecticut.

52. The principles of state law relied upon by defendant in the Threatened Lawsuit, as interpreted by the defendant, constitute an improper interference by Connecticut in interstate commerce in violation of the Commerce Clause of the United States Constitution, U.S. Const. Art I, 8, cl. 3. Second Claim for Relief

(Due Process)

53. Plaintiffs repeat and reallege paragraphs l through 48 hereof.

54. The Threatened Lawsuit and the provisions of Connecticut Law upon which defendant relies, as interpreted by defendant, seek to relieve the State of Connecticut of its own voluntarily-undertaken obligations (by choosing to participate in the Medicaid program) to pay Medicaid expenses to Medicaid-eligible individuals, at the expense of severely impairing the rights of plaintiffs, which are all out-of-state businesses.

55. As interpreted by defendant, the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit entitle the State of Connecticut to recover Medicaid payments from plaintiffs (i) on a retroactive basis, and (ii) without regard to some or all of the elements of proof that any actual Medicaid recipient would be required to establish to recover medical costs from plaintiffs, and some or all of the defenses that plaintiffs would have against any actual Medicaid recipient. Defendant intends to impose this massive and radical departure from law on cigarettes - a lawful product - to the exclusion of numerous other products and activities that may contribute to the costs of Medicaid. Defendant seeks retroactively to impose liability on plaintiffs arising from past conduct that the state has for many years countenanced and regulated and from which it has generated enormous revenue through taxation.

56. The provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, are invalid under the Fourteenth Amendment to the United States Constitution, in that they permit a deprivation of property without due process of law.

57. The provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, are unconstitutional for the further reason that the manner in which they are sought to be applied by defendant deprives plaintiffs of their property without due process of law in violation of the Fourteenth Amendment to the United States Constitution. Third Claim for Relief

(Equal Protection)

58. Plaintiffs repeat and reallege paragraphs 1 through 48 hereof.

59. Despite the fact that there are myriad factors that may contribute to the costs of Medicaid, the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, arbitrarily seek to impose massive costs upon cigarette manufacturers retroactively and prospectively without regard to established legal principles and irrespective of any rights and defenses cigarette manufacturers would have against any actual Medicaid recipient.

60. The provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, violate plaintiffs' rights under the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution. Fourth Claim for Relief

(Supremacy Clause; Medicaid Preemption)

61. Plaintiffs repeat and reallege paragraphs 1 through 48 hereof.

62. The provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, are in conflict with (and are thus preempted by) the Medicaid Act and regulations, including but not limited to in the following respects: (1) by allowing the state to sue in a capacity "independent" of the rights of actual Medicaid recipients, rather than pursuant to the assignment/ subrogation scheme mandated by federal law; (2) by allowing the state to bring a mass suit rather than a suit relating to specific individual Medicaid recipients; (3) by allowing the state to bring a mass suit against companies in a particular industry; (4) by allowing the state to sue beyond the 60-day limitations period mandated by 42 C.F.R 433.139(d)(2); (5) by allowing the state to bring a suit not authorized by the State Medicaid Plan approved by the United States Department of Health and Human Services; and (6) by permitting the Attorney General to bring suit against the cigarette manufacturers in violation of the "single State agency" requirement of federal law.

63. In addition, in light of the comprehensive scheme established by the federal Medicaid Act and the regulations promulgated thereunder, even apart from specific conflicts (including those enumerated in 62 above), the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, are preempted by the Medicaid Act and regulations thereunder.

64. Further, as described above, under the comprehensive system set forth in the Medicaid Act and regulations promulgated thereunder, Connecticut is only authorized to bring against plaintiffs claims for third-party liability for Medicaid payments with respect to the rights (if any) that individual Medicaid recipients might have against plaintiffs. Accordingly, the provisions of Connecticut Law upon which defendant relies, to the extent that they purport to authorize an "independent cause of action" in favor of the State of Connecticut, conflict with the Medicaid Act and regulations thereunder.

65. Accordingly, the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit are inconsistent with and preempted by the Medicaid Act and regulations thereunder and violate the Supremacy Clause of the United States Constitution. Fifth Claim for Relief (Supremacy Clause; Preemption Under the Public Health Cigarette Smoking Act of 1969)

66. Plaintiffs repeat and reallege paragraphs 1 through 48 hereof.

67. In enacting the Federal Cigarette Labeling and Advertising Act of 1965 and its successor, the Public Health Cigarette Smoking Act of 1969, Congress struck a careful balance among (i) recognizing the importance of cigarettes to our national economy and the economies of tobacco growing and manufacturing states by facilitating the sale of cigarettes in interstate commerce; (ii) providing that a warning label be placed on each package of cigarettes; and (iii) allowing individual customers to exercise their personal freedom of choice to smoke or not to smoke. Congress required that the statement

"WARNING: THE SURGEON GENERAL HAS DETERMINED THAT CIGARETTE; SMOKING IS DANGEROUS TO YOUR HEALTH"

(or a variation thereof) be printed in a prominent place on all packages of cigarettes sold in the United States. In addition, Section 5(b) of the Public Health Cigarette Smoking Act of 1969 provided that "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.

68. Congress expressly stated that one of its purposes for providing for uniform warnings and in preempting any other state law "requirements or prohibitions" as aforesaid was that "commerce and the national economy . . . be protected to the maximum extent consistent with [the] declared policy" of "adequately inform[ing] [the public] that cigarette smoking may be hazardous to health." 15 U.S.C. 1331. The Supreme Court has held that lawsuits seeking damages constitute "requirement[s] or prohibition[s]" by the states within the meaning of these federal statutes. See Cipollone v. Liggett Group. Inc.. 112 S. Ct. 2608 (1992).

69. The Threatened Lawsuit and the provisions of Connecticut Law upon which defendant relies (as interpreted by defendant) impose a "requirement or prohibition" based on smoking and health with respect to the promotion and advertising of cigarettes by seeking to impose massive costs of the state Medicaid program upon plaintiffs irrespective of plaintiffs' rights and duties with respect to any actual Medicaid recipient.

70. The provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, are accordingly preempted by the Public Health Cigarette Smoking Act of 1969 and violate the Supremacy Clause of the United States Constitution. Sixth Claim for Relief

(Taking of Property)

71. Plaintiffs repeat and reallege paragraphs 1 through 48 hereof.

72. The Threatened Lawsuit and the provisions of Connecticut Law upon which defendant relies, as interpreted by defendant, by seeking to extract from cigarette manufacturers Medicaid payments retroactively and prospectively without regard to established legal principles and irrespective of any rights and defenses cigarette manufacturers would have against any actual Medicaid recipient, would create a severe economic impact upon plaintiffs and greatly interfere with plaintiffs' settled investment backed expectations.

73. The nature of the state's action through the Threatened Lawsuit and the provisions of Connecticut Law upon which defendant relies, as interpreted by defendant, would constitute in essence a confiscation of plaintiffs' property by the state.

74. The provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, violate plaintiffs' rights under the Taking of Property Clause of the Fifth Amendment to the United States Constitution which is made applicable to the states under the Fourteenth Amendment to the United States Constitution. Seventh Claim for Relief (First Amendment)

75. Plaintiffs repeat and reallege paragraphs 1 through 48 hereof.

76. Despite the fact that the United States Surgeon General had concluded in 1964 that smoking cigarettes is not an "addiction," defendant will claim in the Threatened Lawsuit that plaintiffs violated state law by contesting the highly publicized assertions going back at least to the 1960s by certain government officials (including the Surgeon General in 1988), anti-tobacco groups, and others that nicotine, a substance found naturally in tobacco and cigarettes, is "addictive."

77. Plaintiffs have the right under the First Amendment of the United States Constitution to express their views on this public issue. State laws or actions may not constitutionally be used to stifle debate on controverted public issues so as to enshrine the government's side of a disputed issue as official orthodoxy, with any dissent being proscribed as "fraud." Nor may the state impose massive confiscatory penalties for plaintiffs' expression of disagreement with the views of government officials on this issue, with the monies extracted by the state being used to reinforce the state's views on this issue through anti-smoking programs and campaigns that are contrary to the views held by such manufacturers, who would thus be compelled to pay for speech with which they disagree.

78. The provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, would deprive plaintiffs of their rights under the First and Fourteenth Amendments to the United States Constitution. Eighth Claim for Relief (Deprivation of Plaintiffs' Constitutional and Federal Law Rights Under Color of State Law)

79. Plaintiffs repeat and reallege paragraphs 1 through 48 hereof.

80. Defendant has been acting in concert and with the encouragement and substantial assistance of certain anti-tobacco activists, Attorneys General in certain other states, members of plaintiffs' contingency fee bar, and others in preparing the Threatened Lawsuit and in seeking to foster similar lawsuits by other like-minded Attorneys General as part of an effort that would, if successful, deprive plaintiffs of rights secured by the Constitution and laws of the United States as alleged above.

81. The provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, would deprive plaintiffs of rights secured by the Constitution and laws of the United States under color of state law in violation of 42 U.S.C. 1983. Ninth Claim for Relief (Connecticut State Constitutional, Statutory, and Common Law Claims)

82. Plaintiffs repeat and reallege paragraphs 1 through 48 hereo

83. This claim for relief raises various grounds arising under the Connecticut State Constitution, Connecticut statutes, and Connecticut common law if and to the extent that such grounds may properly be presented in federal court and are cognizable by this Court in this action.

84. The provisions of Connecticut Law upon which defendant relies should not be construed to provide that the State is entitled to recover medical assistance payments from plaintiffs (i) on a retroactive basis; or (ii) without proof of each element of an individual Medicaid recipient's legal claim and without being subject to each of the defenses applicable to an individual Medicaid recipient's legal claim.

85. The Threatened Lawsuit, the claims to be asserted in the Threatened Lawsuit, and the provisions of Connecticut Law upon which defendant relies (as interpreted by defendant) violate or are precluded by the Connecticut State Constitution, Connecticut statutes, and Connecticut common law with respect to the following provisions thereof, among others: (a) equal protection under the Connecticut Constitution Article First, Sections 1 and 20; (b) liberty of speech under the Connecticut Constitution Article First, Sections 4 and 5; (c) due process protection under the Connecticut Constitution Article First, Sections 8, 9 and 10; (d) protection against the taking of property without just compensation under the Connecticut Constitution Article First, Section 11; (e) separation of powers under the Connecticut Constitution Article Second; (f) statutory limits on defendant's authority, including but not limited to those contained in Title 3 and Title 4 of the Connecticut General Statutes; and (g) Connecticut common law principles, including but not limited to principles of laches, unclean hands, waiver, estoppel and mitigation of damages.

WHEREFORE, plaintiffs respectfully demand judgment as follows:

A. On their First Claim for Relief, declaring that the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuits as interpreted by defendant, violate the Commerce Clause of the United States Constitution, and permanently enjoining the defendant from prosecuting, imposing or enforcing liability pursuant to the Threatened Lawsuit.

B. On their Second Claim for Relief, declaring that the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, are invalid, and unconstitutional as applied to plaintiffs, under the Due Process Clause of the Fourteenth Amendment to the United States Constitution, and permanently enjoining the defendant from prosecuting, imposing or enforcing liability pursuant to the Threatened Lawsuit.

C. On their Third Claim for Relief, declaring that the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, violate the Equal Protection Clause of the Fourteenth Amendment to the United States Constitution, and permanently enjoining the defendant from prosecuting, imposing or enforcing liability pursuant to the Threatened Lawsuit.

D. On their Fourth Claim for Relief, declaring that the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit are preempted by the Medicaid Act and the regulations promulgated thereunder and violate the Supremacy Clause of the United States Constitution, and permanently enjoining the defendant from prosecuting, imposing or enforcing liability pursuant to the Threatened Lawsuit.

E. On their Fifth Claim for Relief, declaring that the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, are preempted by the Public Health Cigarette Smoking Act of 1969 and violate the Supremacy Clause of the United States Constitution, and permanently enjoining the defendant from prosecuting, imposing or enforcing liability pursuant to the Threatened Lawsuit.

F. On their Sixth Claim for Relief, declaring that the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, violate the Taking of Property Clause of the Fifth Amendment to the United States Constitution, which is made applicable to the States under the Fourteenth Amendment to the United States Constitution, and permanently enjoining the defendant from prosecuting, imposing or enforcing liability pursuant to the Threatened Lawsuit.

G. On their Seventh Claim for Relief, declaring that the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant violate the First and Fourteenth Amendments to the United States Constitution, and permanently enjoining the defendant from prosecuting, imposing or enforcing liability pursuant to the Threatened Lawsuit.

H. On their Eighth Claim for Relief, declaring that the provisions of Connecticut Law upon which defendant relies in the Threatened Lawsuit, as interpreted by defendant, would deprive plaintiffs of rights secured by the Constitution and Laws of the United States under color of state law, in violation of 42 U.S.C. 1983, and permanently enjoining the defendant from prosecuting, imposing or enforcing liability pursuant to the Threatened Lawsuit.

I. On their Ninth Claim for Relief, declaring that the Threatened Lawsuit, the claims to be asserted therein, and the provisions of Connecticut Law upon which defendant relies, as interpreted by defendant, violate the Connecticut State Constitution, Connecticut statutes, and Connecticut common law in the respects set forth in the Ninth Claim for Relief, and to the extent that such an injunction premised on such violations may properly be sought and is cognizable by this Court, permanently enjoining the defendant from prosecuting, imposing or enforcing liability pursuant to the Threatened Lawsuit.

J. Awarding plaintiffs their costs and disbursements, including reasonable attorneys' fees, incurred in connection with this action. Awarding plaintiffs such other and further relief as to the Court may seem just and proper.