A group of tobacco companies has filed suit against the Attorney General of Texas and various state departments to preempt a "threatened lawsuit" by the state. The tobacco companies claim that the state is preparing a suit against them for the costs incurred by Medicaid and other health programs due to the detrimental effects of cigarette smoking on Texans. They also claim that the state authorities are overreaching their authority and that any suit should be dismissed for various procedural reasons. Here is the Nov. 28, 1995 petition.

IN THE DISTRICT COURT OF TRAVIS COUNTY, TEXAS

126th JUDICIAL DISTRICT

PHILIP MORRIS INCORPORATED, BROWN & WILLIAMSON TOBACCO CORPORATION, LIGGETT GROUP INC., LORILLARD TOBACCO COMPANY, R.J. REYNOLDS TOBACCO COMPANY, AND THE TOBACCO INSTITUTE, INC.

Plaintiffs,

vs.

DAN MORALES, ATTORNEY GENERAL OF THE STATE OF TEXAS, HEALTH AND HUMAN SERVICES COMMISSION OF THE STATE OF TEXAS, DEPARTMENT OF HEALTH OF THE STATE OF TEXAS, AND DEPARTMENT OF HUMAN SERVICES OF THE STATE OF TEXAS,

Defendants.

PLAINTIFFS' ORIGINAL PETITION

COME NOW, Philip Morris Incorporated, Brown & Williamson Tobacco Corporation, Liggett Group Inc., Lorillard Tobacco Company, R.J. Reynolds Tobacco Company ("Plaintiff Manufacturers"), and The Tobacco Institute, Inc. (collectively, "Plaintiffs"), complaining of Dan Morales, Attorney General of the State of Texas ("Attorney General"), and the Health and Human Services Commission of the State of Texas, the Department of Health of the State of Texas, and the Department of Human Services of the State of Texas (the "Departments") (collectively, "Defendants"), and for Plaintiffs' causes of action would respectfully show unto the Court as follows:

NATURE OF THE ACTION

1. In this action, Plaintiffs seek, pursuant to the Uniform Declaratory Judgments Act, Tex. Civ. Prac. & Rem. Code 37.001 et seq., and other applicable law, to obtain declaratory relief with regard to, and an injunction against, the filing and prosecution of a lawsuit by, or on behalf of, one or more of the Defendants, which the Attorney General has threatened to bring against Plaintiffs (the "Threatened Lawsuit").

2. On information and belief, the Threatened Lawsuit against Plaintiffs would seek to hold them directly liable to the State of Texas, based on theories other than the assignment/subrogation remedy provided by statute, for the costs of past, present, and future medical assistance provided to various persons in Texas, including Medicaid payments, funded in part by the State of Texas or its subdivisions, including the Departments (the "Medical Assistance Payments"). The Threatened Lawsuit would seek to abrogate Plaintiffs' traditional affirmative defenses and bypass proximate causation and other requirements of Texas and federal law.

3. Neither the Attorney General nor the Departments have the authority to file and maintain the Threatened Lawsuit, and its pursuit would violate Plaintiffs' rights under the Constitution and laws of Texas, and the United States Constitution and federal law.

PARTIES 4. Philip Morris Incorporated, a manufacturer of cigarettes, is a Virginia corporation whose principal place of business is in New York, New York.

5. Brown & Williamson Tobacco Corporation, a manufacturer of cigarettes, is a Delaware corporation whose principal place of business is in Louisville, Kentucky.

6. Liggett Group Inc., a manufacturer of cigarettes, is a Delaware corporation whose principal place of business is in Durham, North Carolina.

7. Lorillard Tobacco Company, a manufacturer of cigarettes, is a Delaware corporation whose principal place of business is in New York, New York.

8. R.J. Reynolds Tobacco Company, a manufacturer of cigarettes, is a New Jersey corporation whose principal place of business is in Winston-Salem, North Carolina.

9. The Tobacco Institute, Inc., a trade association, is a New York corporation whose principal place of business is in Washington, D.C.

10. Dan Morales is the Attorney General of the State of Texas.

11. The Health and Human Services Commission, the Department of Health, and the Department of Human Services are subdivisions and agencies of the State of Texas.

12. Venue for this action is proper in Travis County, Texas, including without limitation under Tex. Civ. Prac. & Rem. Code 65.023 and Section 1, 1995 Tex. Sess. Law Serv. Ch. 138 (S.B. 32) (Vernon's) (to be codified at Tex. Civ. Prac. & Rem. Code 15.002(a)).

BACKGROUND

13. Pursuant to the Texas Medical Assistance Act, Tex. Hum. Res. Code ("Hum. Res. Code") 32.001 et Seq., Texas participates in the Medicaid program established by the Federal Social Security Act, 42 U.S.C.A. Sections 1396-1396v.

14. The state agency responsible for the administration of the Medicaid program in Texas is the Health and Human Services Commission. Hum. Res. Code 32.021; Section 8.002, 1995 Tex. Sess. Law Serv. Ch. 76 (S.B. 959) (Vernon's) (codifying former Tex. Rev. Stat. Ann. art. 4413(502), in part, at Tex. Govt. Code 531.021).

15. When medical assistance is provided to an individual pursuant to the Texas Medicaid program, the Health and Human Services Commission is deemed.to be the - assignee of, and becomes subrogated to, any rights of recovery the Medicaid recipient may have against third parties. Hum. Res. Code 32.033.

16. The Commission's statutory subrogation right is assigned to the Department of Health under Title 25 Texas Administrative Code 28.101.

THE THREATENED LAWSUIT

17. On information and belief, Dan Morales, in his capacity as Attorney General of the State of Texas, intends to file the Threatened Lawsuit that ignores, and fails to comply with, the statutory assignment/subrogation remedy for seeking reimbursement of Medical Assistance Payments from third parties.

18. On information and belief, the Attorney General instead intends to sue on the improper grounds that the sale of cigarettes in Texas by Plaintiff Manufacturers renders Plaintiffs liable directly to the State for reimbursement of all or some of the Medical Assistance Payments, and intends to assert claims other than the statutory assignment/subrogation remedy.

19. Lawsuits similar to the Threatened Lawsuit have been filed by the attorneys general in other jurisdictions, including Florida, Minnesota, Mississippi, and West Virginia. These lawsuits have raised claims of, among other things, negligence, unjust enrichment, restitution, conspiracy, fraud, and misrepresentation. On information and belief, the Attorney General is aware of those lawsuits and has discussed them with those attorneys general.

20. On information and belief, the Attorney General is preparing to file the Threatened Lawsuit against Plaintiffs at this time. The Threatened Lawsuit will include claims against Plaintiffs based on a variety of theories in law and equity, including, but not limited to, the claims contained in the lawsuits filed in the other jurisdictions. The threat to Plaintiffs' legal rights and interests is imminent.

21. On information and belief, the Attorney General takes the position that the State is entitled to recover from Plaintiffs without proof that any Plaintiff is liable to any particular Medicaid recipient. He thus seeks to hold Plaintiffs liable without demonstrating that any particular Plaintiff caused any particular recipient's injuries (or the State's provision of medical care). Further, he seeks to strip Plaintiffs of the traditional affirmative defenses they would possess in a suit brought by or on behalf of a Medicaid recipient, as well as circumvent Texas law of assignment and subrogation.

22. The imposition of liability and/or the stripping of affirmative defenses referenced in paragraphs 17 through 21 would be a violation of the Constitution and laws of Texas, and the United States Constitution and federal law.

23. Plaintiff Manufacturers' cigarettes are sold throughout Texas. These sales amount to billions of dollars annually. The State also receives hundreds of millions of dollars in excise taxes annually from these sales. Although Plaintiffs dispute that they are directly liable to the State, the threat of such a lawsuit places into question Plaintiffs' liability for the past, present, and future sales of cigarettes in Texas by Plaintiff Manufacturers.

24. As a result of the imminent threat of litigation against them, Plaintiffs are uncertain of their legal rights and status and uncertain whether the past, present, and future sales of cigarettes in Texas by Plaintiff Manufacturers render, or will render, Plaintiffs liable to the State and/or the Departments for any Medical Assistance Payments made by the State or the Departments.

25. To resolve these actual controversies, uncertainties, and disputes, Plaintiffs seek declaratory and injunctive relief as set forth in the following paragraphs.

CLAIMS

I. DECLARATORY RELIEF/AUTHORITY OFTHE ATTORNEY GENERAL TO BRING THE THREATENED LAWSUIT

26. The Attorney General has no constitutional or statutory authority to seek reimbursement for Medical Assistance Payments by filing and maintaining the Threatened Lawsuit, or otherwise.

27. On information and belief, the Attorney General maintains that he does have authority to seek reimbursement for Medical Assistance Payments by filing and maintaining the Threatened Lawsuit, or otherwise.

28. A present, actual, and justiciable controversy exists between Plaintiffs and the Attorney General regarding the Attorney General's authority as outlined in paragraphs 26 and 27.

29. As a result of the imminent threat of litigation against them, Plaintiffs are uncertain of their legal rights and status and uncertain whether the past, present, and future sales of cigarettes in Texas by Plaintiff Manufacturers render, or will render, Plaintiffs liable to the State and/or the Departments for any Medical Assistance Payments made by the State or the Departments.

30. Pursuant to the Uniform Declaratory Judgments Act, Tex. Civ. Prac. & Rem. Code 37.001 et seq., Plaintiffs are entitled to a declaration that the Attorney General has no authority to seek reimbursement for Medical Assistance Payments by filing and maintaining the Threatened Lawsuit, or otherwise. Plaintiffs are also entitled to appropriate injunctive relief.

II. DECLARATORY RELIEF/SCOPE OF PERMISSIBLE RECOVERY

31. The subrogation/assignment remedy provided in Hum. Res. Code 32.033 is the State's exclusive remedy for recovery of Medical Assistance Payments from third parties.

32. Neither the Attorney General nor the Departments have the authority to pursue recovery or claims beyond the subrogation/assignment remedy provided for in Hum. Res. Code 32.033.

33. In any action under Hum. Res. Code 32.033 for the recovery of Medical Assistance Payments, the Attorney General and the Departments may recover from a third party if and only if the Medicaid recipient had a right of such recovery.

34. On information and belief, one or more of the Defendants dispute the allegations contained in paragraphs 31 through 33.

35. A present, actual, and justiciable controversy exists between Plaintiffs and Defendants regarding the nature of the State's right to recover Medical Assistance Payments from third parties as described in paragraphs 31 through 34.

36. As a result of the imminent threat of litigation against the Plaintiffs are uncertain of their legal rights and status and uncertain whether the past, present, and future sales of cigarettes in Texas by Plaintiff Manufacturers render, or will render, Plaintiffs liable to the State and/or the Departments for any Medical Assistance Payments made by the State or the Departments.

37. Pursuant to the Uniform Declaratory Judgments Act, Tex. Civ. Prac. & Rem. Code 37.001 et seq., Plaintiffs are entitled to declaratory relief from this Court regarding the nature of the State's right to recover Medical Assistance Payments from third parties as described in paragraphs 31 through 33. Plaintiffs are also entitled to appropriate injunctive relief.

III. DECLARATORY RELIEF/THE THREATENED LAW- SUIT WOULD VIOLATE PLAINTIFFS' RIGHTS

38. In any action to recover Medical Assistance Payments, the Attorney General and the Departments must demonstrate that Plaintiffs caused the injuries of, and are liable to, each Medicaid recipient for whose Medicaid benefits the State is seeking to recover.

39. The Threatened Lawsuit seeks to drastically alter traditional substantive and procedural protections of the common law by seeking to impose liability for the medical care provided to recipients without any showing that any of the Plaintiffs is legally liable for such medical care. Further, the Threatened Lawsuit seeks to impose.this liability en masse, without any:adjudication of any individual issues regarding liability, causation, damages, or affirmative defenses relating to any particular Medicaid recipient. The Threatened Lawsuit would thus violate the Due Course of Law and other guarantees of the Texas Constitution, and Texas statutory and common law, as well as Due Process and other guarantees of the United States Constitution and federal law.

40. The Threatened Lawsuit also seeks to create and is predicated upon irrebuttable presumptions regarding individual causation, damages, and affirmative defenses in violation of the Due Course of Law and other guarantees of the Texas Constitution, and Texas statutory and common law, as well as Due Process and other guarantees of the United States Constitution and federal law.

41. On information and belief, one or more of the defendants dispute the allegations contained in paragraphs 38 through 40.

42. A present, actual, and justiciable controversy exists between Plaintiffs and Defendants regarding the propriety of the Threatened Lawsuit under the Due Course of law and other guarantees of the Texas Constitution, and Texas statutory and common law, as well as Due Process and other guarantees of the United States Constitution and federal law.

43. As a result of the imminent threat of litigation against them, Plaintiffs are uncertain of their legal rights and status and uncertain whether the past, present, and future sales of cigarettes in Texas by Plaintiff Manufacturers render, or will render, Plaintiffs liable to the State and/or the Departments for any Medical Assistance Payments made by the State or the Departments.

44. Pursuant to the Uniform Declaratory Judgments Act, Tex. Civ. Prac. & Rem. Code 37.001 et seq., Plaintiffs are entitled to declaratory relief from this Court regarding the propriety of the Threatened Lawsuit under the Due Course of Law and other guarantees of the Texas Constitution, and Texas statutory and common law, as well as Due Process and other guarantees of the United States Constitution and federal law. Plaintiffs are also entitled to appropriate injunctive relief.

IV. DECLARATORY RELIEF/PLAINTIFFS HAVE NO LIABILITY UNDER THE THREATENED LAWSUIT

45. There is no basis in law or in fact to hold Plaintiffs liable under the various legal and equitable theories, including but not limited to those theories and claims referenced in paragraphs 19 and 20, that will be asserted in the Threatened Lawsuit, which is an attempt to recover Medical Assistance Payments outside the statutory assignment/subrogation remedy.

46. On information and belief, one or more of the Defendants dispute the allegations contained in paragraph

47. A present, actual, and justiciable controversy exists between Plaintiffs and Defendants regarding Plaintiffs' liability in the Threatened Lawsuit.

48. As a result of the imminent threat of litigation against them, Plaintiffs are uncertain of their legal rights and status and uncertain whether the past, present, and future sales of cigarettes in Texas by Plaintiff Manufacturers render, or will render, Plaintiffs liable to the State and/or the Departments for any Medical Assistance Payments made by the State or the Departments.

49. Pursuant to the Uniform Declaratory Judgments Act, Tex. Civ. Prac. & Rem. Code 37.001 et seq., Plaintiffs are entitled to a declaration that they are not liable, under the Threatened Lawsuit, to the State of Texas or any of its subdivisions, however called, including through the State's Attorney General, with respect to all or any past, present, or future Medical Assistance Payments under any theory of recovery other than subrogation, including but not limited to those theories and claims referenced in paragraphs 19 and 20. Plaintiffs are also entitled to appropriate injunctive relief.

RELIEF SOUGHT WHEREFORE, Plaintiffs pray for

1. A declaration from this Court that:

a. The Attorney General has no authority to seek reimbursement for Medical Assistance Payments by filing and maintaining the Threatened Lawsuit, or otherwise;

b. The subrogation/assignment remedy provided in Tex. Hum. Res. Code 32.033 is the State's exclusive remedy for recovery of Medical Assistance Payments from third parties, and neither the Attorney General nor the Departments have the authority to pursue recovery or claims beyond the subrogation/assignment remedy, and in an action under Tex. Hum. Res. Code 32.033 for recovery of Medical Assistance Payments, the Attorney General and/or the Departments may recover from third parties if and only if the Medicaid recipient had a right to such recovery;

c. The Threatened Lawsuit would violate the Due Course of Law and other guarantees of the Texas Constitution and Texas statutory and common law, as well as Due Process and other guarantees of the United States Constitution and federal law; and

d. Plaintiffs are not liable to the Defendants, or to the State of Texas by or through the Defendants, under the Threatened Lawsuit:

2. Appropriate injunctive relief, including an order enjoining the Defendants from filing or maintaining the Threatened Lawsuit or taking other action inconsistent with the declarations requested above;

3. Recovery of such costs and attorneys' fees as are equitable and just to be awarded to Plaintiffs; and

4. Such other relief as the Court deems appropriate.

OF COUNSEL ARNOLD & PORTER
Suite 4000
1700 Lincoln Street
Denver, CO 80203
(303) 863-1000
(303) 832-0428 (FAX)

OF COUNSEL KIRKLAND & ELLIS
200 East Randolph Drive
Chicago, IL 60601
(312) 861-2000
(312) 861-2200 (FAX)

MARONEY, CROWLEY, BANKSTON, RICHARDSON & HULL, L.L.P.
1520 Austin Centre 701 Brazos
Austin, Texas 78701
(512) 499-8855 (512) 499-8886 (FAX)

By:/s/ Jack D. Maroney State Bar No. 13009000 Attorneys for Plaintiff Philip Morris Incorporated

KING & SPALDING
1100 Louisiana, Suite 3300
Houston, Texas 77002-5219
(713) 751-3200
(713) 751-3290 (FAX)

By: /s/ L. Joseph Loveland State Bar No. 00792154 Attorneys for Plaintiff Brown & Williamson Tobacco Corporation

THORNTON, SUMMERS, BIECHLIN, DUNHAM & BROWN, L.C.
916 South Capitol of Texas Highway, C-100
Austin, Texas 78746
(512) 329-6666
(512) 327-4694 (FAX)

By: /s/Robert Summers State Bar No. 19507000 Attorneys for Plaintiff Liggett Group, Inc.

OF COUNSEL SHOOK, HARDY & BACON
1200 Main Street
Kansas City, MO 64105
(816) 474-6550
(816) 421-5547 (FAX)

GWINN & ROBY
4100 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
(214) 698-4100
(214) 747-2904 (FAX)

By: /s/Robert A. Gwinn State Bar No. 08656000 Attorneys for Plaintiff Lorillard Tobacco Company

OF COUNSEL JONES, DAY, REAVIS & POGUE
1450 G Street, N.W.
Washington, D.C. 20005
(202) 879-3939
(202) 737-2832 (FAX)

ATLAS & HALL, L.L.P.
Professional Arts Building
818 Pecan Avenue
P.O. Box 3725
McAllen, Texas 78502-3725
(210) 682-5501
(210) 686-6109 (FAX)

By: /s/Morris Atlas State Bar No. 01418000 Attorneys for Plaintiff R.J. Reynolds Tobacco Company

GWINN & ROBY
4100 Renaissance Tower
1201 Elm Street
Dallas, Texas 75270
(214) 698-4100
(214) 747-2904 (FAX)

By: /s/Lea F. Courington State Bar No. 04890300 Attorneys for Plaintiff The Tobacco Institute, Inc.