U.S. District Judge Michael Mukasey reversed his earlier dismissal of a suit brought against Philip Morris Companies, Inc. by disgruntled stockholders. Plaintiffs produced new evidence concerning the cigarette manufacturer's knowledge of nicotine's addictive properties to persuade Mukasey to issue the new Opinion and Order. Here is the April 8, 1996 opinion and order.

BETTY GRAYSON KURZWEIL and ROBERT GRAYSON as trustees of the trust under the will of FLORENCE ROSENMAN, WILLIAM STEINER, and JERRY KING on behalf of themselves and all others similarly situated,

Plaintiffs,

-against

PHILIP MORRIS COMPANIES, INC., WILLIAM MURRAY, MICHAEL A. MILES, HANS G. STORR and WILLIAM I. CAMPBELL,

Defendants.

94 Civ. 2373 (MBM)
94 Civ. 2546 (MBM)

OPINION AND ORDER

APPEARANCES:

JEFFREY G. SMITH, ESQ.
IRA P. LUSTBADER, ESQ.
JODY AMSEL, ESQ.
(Attorneys for Plaintiffs)
Wolf Haldenstein Adler
Freeman & Herz LLP
270 Madison Avenue
New York, N.Y. 10016
(212) 545-4600

ZACHARY STARR, ESQ.
Starr & Holman LLP
(Attorney for Plaintiffs)
10 East 40th Street
29th Floor
New York, N.Y. 10016
(212) 584-5442

CHARLES D. MAURER, ESQ.
(Attorney for Plaintiffs)
122 East 42nd Street
New York, N.Y. 10168
(212) 986-1755

HERBERT M. WACHTELL, ESQ.
GEORGE T. CONWAY III, ESQ.
MEIR FEDER, ESQ.
(Attorneys for Defendants)
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, N.Y. 10019
(212) 403-1000

MICHAEL B. MUKASEY, U.S.D.J.

Plaintiffs, purchasers of Philip Morris common stock between June 11, 1991 and May 6, 1994, brought a class action against Philip Morris Companies Inc. ("the Company"), and William Murray, Michael A. Mile-, Hans G. Storr and William I. Campbell, all officers and/or directors of Philip Morris or Philip Morris U.S.A., for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act.), 15 U.S.C. SS 785(b) and 78t(a), and Rule 10b-5 promulgated thereunder, 17 C.F.R. S 240.10b-5.*1 In an opinion and order entered on September 11, 1995, I dismissed plaintiffs' complaint pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim. Plaintiffs now move for relief from that order pursuant to Fed. R. Civ. P. 60(b), and for leave to amend their consolidated class action complaint pursuant to Fed. R. Civ. P. 15(a) and 15(d). For the reasons stated below, plaintiff.' motion for relief from the order is granted pursuant to Fed. R. Civ. P. 60(b)(2) based on newly discovered evidence, the August 22, 1996 Judgment is vacated, and plaintiffs' motion for leave to amend their complaint is granted.

As noted, I issued an opinion and order dismissing plaintiffs' complaint pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim, and familiarity with that opinion is assumed for present purposes. See Kurzweil v. Philip Morris Companies. Inc., Nos. 94 Civ. 2373, 94 Civ. 2546, 94 Civ. 6399, 1995 WL 540025 (S.D.N.Y. Sept. 11, 1995).*2 Philip Morris is a Virginia corporation with its principal place of business in New York City. (Compl. para. 12) 3 Among other businesses, Philip Morris manufacture. and sells cigarettes in the United States. (Id. Paras. 12, 26) In 1992, Philip Morris's domestic tobacco unit, Philip Morris U.S.A. Inc., generated nearly half of the Company's total operating income. (Id. para. 26) In their complaint, plaintiffs, all purchasers of Philip Morris common stock, alleged that defendants violated federal securities laws and maintained artificially high market prices for Philip Morris common stock by suggesting to the public "through their statements, that nicotine is not addictive, that smoking is entirely a matter of 'choice,"' and "that their own evidence contradicted that of the government and anti-smoking advocates. " (Id. para. 42) Plaintiffs alleged that the omission of the Company's internal and industry studies on nicotine and addictiveness made those statements, "and/or the suggestion created by the totality of the statements made," materially misleading.

The statements detailed in the complaint included pronouncements by Philip Morris spokespersons and representatives of tobacco industry organizations. In the previous opinion and order, I held that statements made by representatives of tobacco industry organizations may not be considered because defendants "cannot be held accountable for the allegedly fraudulent statements of others. n Kurzweil, 1995 wL 540025, at *2 (citing Mills v. polar Molecular Corp., 12 F. ad 1170, 1175 (2d Cir. 1993)). The remaining statements consisted of comments on pending lawsuits, statements made to dissuade investors or legislators from taking certain adverse action, and the Company's response to a broadcast of the ABC television program "Day One." Id., at *2-3. The substance of those statements generally consisted of denials that nicotine was addictive. Id.

In the complaint, plaintiffs cited "one internal study, and a collection of unidentified industry studies, as evidence that defendants knew nicotine had addictive properties." 1995 WL 540025, at *2. The internal study, allegedly concluding that nicotine is an addictive substance, was conducted by Dr. Victor J. DeNoble. (Compl.Para. 35) Plaintiff cited also a 1972 and a 1980 memorandum by unidentified Philip Morris scientists which claimed that "no one has ever become a smoker by smoking cigarettes without nicotine" and "nicotine is a powerful pharmacological agent.. (Id- Para. 33-34). Finally, plaintiffs claimed that defendants had "access to and awareness of unspecified tobacco industry letters, reports, memoranda, and studies 'indicating that nicotine is addictive.'" 1995 WL 540025, at *2 (citing Compl. Para. 36).

In the previous opinion and order, I noted first that the complaint did not identify the industry studies to which it referred, and that the DeNoble report was the only internal study specified in the complaint. 1995 WL 540025, at *4. I then considered the DeNoble study and noted that the study itself states that "termination of prolonged exposure to nicotine does not result in physiological dependence." Id. (citing Defs. Mem. Supp., Ex. G at 1) Accordingly, I concluded that plaintiffs had not shown that defendants possessed evidence indicating that nicotine was addictive. Id.

I then held that plaintiffs failed to state a claim under S lO(b) and Rule lOb-5 because "defendants' allegedly fraudulent statements are non-actionable expressions of opinion, and the purported misrepresented and omitted information is not material because it was known to the market through the public debate surrounding nicotine and addiction." Id. I found that because a genuine and vigorous dispute existed as to whether nicotine is addictive, and defendants disclosed in report. on Form 10-K filed with the SEC the disputed facts and discussed the possible outcomes if nicotine was found to be addictive -including increased government regulation and the potential removal of cigarette. from the market -- defendants thereafter were free to state their opinion as to the addictiveness of nicotine so long as the facts were genuinely in dispute and the opinion was reasonably supported by evidence. Id. (citing Avnet. Inc. v. Scope Indus., 499 F. Supp. 1121, 1125 (S.D.N.Y. 1980); Arazie v. Mullane, 2 F.3d 1456, 1468 (7th Cir. 1993)). I then noted that plaintiffs did not "deny that the addictiveness of nicotine is a contested issue," and that they cited in their original complaint at least one impartial source which supported defendants' point of view. Id. (referring to a 1964 Surgeon General's Report)).

Then, I found that "[d]efendants' alleged misstatements and omissions do not rise to the requisite level of materiality" to state a claim under Section 10(b) and Rule 10b-5 because "the risks and dangers of nicotine were matters of public debate long before plaintiffs made their own investments." Id., at *5. I found that "any adverse effect that could have been created by defendants' optimistic statement. was countered by the more somber information which credibly entered the market." Id.

Plaintiffs now move to undo my September 1995 order dismissing the complaint and to file an amended complaint.

II.

Plaintiffs move pursuant to Rules 60(b)(2), (3), and (6). Federal Rule 60(b) states in relevant part:

On motion and upon such terms as are just, the court may relieve a party or a party's legal representative from a final judgment, order, or proceeding for the following reasons: . . . (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; . . . or (6)any other reason justifying relief from the operation of the judgment. Fed. R. Civ. P. 60(b). As the Second Circuit has stated: "Properly applied Rule 60(b) strikes a balance between serving the ends of justice and preserving the finality of judgments." Nemaizer v. Baker, 793 F.2d 58, 61 (2d Cir. 1986). Although preserving the finality of judgments is an important and weighty interest, another important interest is deciding cases on the merit-. United States v. Cirami, 563 F.2d 26, 33 (2d Cir. 1977). Also, although Rule 60(b) should be interpreted broadly to do "substantial justice," it cannot be used as a substitute for appeal, and can be invoked only upon a "showing of exceptional circumstances." Id. Finally, a Rule 60(b) motion is "addressed to the sound discretion of the district court." Id.

Motions brought pursuant to Rules 60(b)(2) and (3) must be brought not more than one year "after the judgment, order, or proceeding was entered or taken," and motions pursuant to Rule 60(b)(6) must be brought within a reasonable time. Fed. R. Civ. P. 60(b). The previous opinion and order was entered on September 11, 1995. Plaintiffs filed this motion on September 9, 1996, within one year after the order was entered and within a reasonable time.

Defendant. argue, however, that Rule 60(b) is not applicable to the September 1995 order because the rule applies only to a "final judgment, order or proceeding," Fed. R. Civ. P. 60(b), and defendants consider the September 1995 order to be interlocutory. Thus, defendants argue that plaintiffs' motion must be addressed to the judgment entered a year later on August 23, 1996, and because the newly discovered evidence presented in this motion wee in plaintiffs' possession before that judgment was entered, plaintiffs are not entitled to relief under Rule 60(b)(2).

A final order is defined as "one which terminates the litigation between the parties and the merits of the case and leaves nothing to be done but to enforce by execution what has been determined." Black's Law Dictionary 567 (5th ed. 1979). An interlocutory order, on the other hand, is: "Something intervening between the commencement and the end of a suit which decides some point or matter, but is not a final decision of the whole controversy. Id. 731. My September 1995 order dismissing plaintiffs' complaint for failure to state a claim was a final order terminating the litigation and finally determining the merits of the case, and judgment could have been entered immediately. The entry of judgment was delayed only because the State Board of Administration plaintiffs, whose case had been consolidated with this one, had been granted leave in the order to amend their complaint, and were engaged at the time in settlement negotiations. Plaintiffs' motion is addressed correctly to the September 1995 order and is timely under Rule 60(b). *4

III.

Plaintiffs move first pursuant to Rule 60(b)(2) based on newly discovered evidence. To prevail on a Rule 60(b)(2) motion, plaintiffs must demonstrate that "(1) the newly discovered evidence was of facts that existed at the time of trial or other dispositive proceeding, (2) that the movant must have been justifiably ignorant of them despite due diligence, (3) the evidence must be admissible and of such importance that it probably would have changed the outcome, and (4) the evidence must not be merely cumulative or impeaching." Frankel v. ICD Holdings S.A., 939 F. Supp. 1124, 1127 (S.D.N.Y. 1996) (citing Weissmann v. Freeman, 120 F.R.D. 474, 476 (S.D.N.Y. 1988); 11 Charles Alan Wright, Arthur R. Miller & Mary Kay Kane, Federal Practice and Procedure: Civil 2d SS 2808, 2859 (1995)).

A. The evidence is newly discovered and plaintiffs exercised due diligence.

To succeed on a motion pursuant to Rule 60(b)(2) the evidence presented must be "truly newly discovered or . . . could not have been found by due diligence. n United States v. Potamkin, 697 F.2d 491, 493 (2d Cir.), cert. denied, 462 U.S. 1144 (1983) (quoting Westerly Elec. Corp. v. Walter Kiddie & Co., 367 F.2d 269, 270 (2d Cir. 1966)). Under Rule 60(b), the new evidence must have existed at the time of the decision, but if it was "in the possession of the party before the judgment [or order] was rendered it is not newly discovered and does not entitle the party to relief. n Wright, Miller & Kane, supra, S 2859. Here, some of the new evidence -- documents relating to Philip Morris and industry studies on the addictiveness of nicotine -- was published in the Congressional Record in July and August 1995, shortly before the opinion and order was issued. (P1. Mot. at 3 n.4, 8, Ex. A Para. 117) Accordingly, defendants argue that the internal and industry documents are not "new evidence" sufficient to entitle plaintiffs to relief under Rule 60(b)(2), and plaintiffs cannot "show good cause for their failure to act sooner." (Def. Mem. at 13, 14 (quoting Kotlicky v. United States Fidelity & Guaranty Co., 817 F.2d 6, 9 (2d Cir. 1987)). Defendants argue that plaintiffs' failure to file a motion seeking leave to amend their complaint pursuant to Rule 15(a) sometime in August 1995, after the evidence was made available publicly and before I issued the order, prohibits them from obtaining relief pursuant to Rule 60(b).

Plaintiffs argue that they exercised due diligence but that the new evidence "could not have reasonably been discovered and presented to the Court . . . until after the September 8 Order" because it lay within the knowledge, possession and access of defendants and was disclosed and made available "too late to have affected the September 8 Order." (P1. Mem. at 9, 10) *5

The Rule 60(b) requirement that the evidence presented in support of the motion be newly discovered, or evidence which by due diligence could not have been discovered, insures that plaintiffs do not attempt to reopen final judgments or relitigate decided issues based on evidence in their possession or capable of discovery at a time when it could be presented to the court or the trier of fact. Although some of plaintiffs' new evidence was made available publicly approximately one month before I issued the opinion and order, plaintiffs have demonstrated due diligence and that the new evidence likely could not have been presented before the order was entered. Defendants' motion to dismiss the original complaint was fully briefed in December 1994. The documentary evidence of internal and industry studies and Philip Morris's manipulation of nicotine was not capable of discovery before August 1995. As plaintiffs note, the documents made available publicly included thousands of pages of evidence in the Congressional Record which had to be identified, retrieved, reviewed and analyzed. (See P1. Mem., Ex. D) Even presuming that plaintiffs were following the hearings concerning nicotine and cigarettes before the House subcommittee and knew precisely when the documents were published in the Congressional Record, the documents could not reasonably have been gathered, organized and presented to the court before the order was issued in September 1995. Also, defendants have adduced no evidence that plaintiffs had actual possession of this documentary evidence before the September 1995 order was issued, only that the evidence was then available. Indeed, defendants claim that plaintiffs had actual knowledge of the evidence only as of March and April 1996, when plaintiffs printed the documents from Internet World Wide Web sites. (Def. Mem. at 10) Moreover, as shown below, this new documentary evidence is of enough potential importance and volume that I probably would not have granted defendants' motion to dismiss had it been described in the initial complaint. Therefore, the fact that the evidence could have been discovered shortly before the order was issued will not bar plaintiffs from relief pursuant to Rule 60(b) *6

B. Most of the evidence is admissible and cognizable on a Rule 60(b) motion.

The newly discovered evidence plaintiffs present on this motion includes: 1) specifically identified Philip Morris and tobacco industry documents discussing studies concerning whether cigarettes and nicotine are addictive; 2) specifically identified Philip Morris documents discussing the manipulation of nicotine levels in cigarettes; 3) sworn statements from three former Philip Morris researchers or employees signed in March 1996, discussing the Company's alleged knowledge of the addictiveness of nicotine and the manipulation of nicotine levels; 4) a recent Florida state jury verdict finding that cigarettes are unreasonably dangerous and defective products; and 5) recent government actions regarding nicotine, including President Clinton's Executive Order signed August 23, 1996, declaring nicotine to be an addictive drug and the consolidation in September 1996 of pending investigations by two U.S. Attorney's Offices focusing on whether United States tobacco companies made fraudulent misrepresentations about nicotine's addictiveness.

Most of this evidence is admissible and cognizable on a Rule 60(b)(2) motion as newly discovered evidence. The documents regarding the alleged addictiveness of nicotine and efforts to manipulate levels nicotine level. in cigarettes are relevant and not hearsay. Fed. R. Evid. 801(d) ("A statement is not hearsay if . . . [t]he statement is offered against a party and is . . . a statement by the party's agent or servant concerning a matter within the scope of the agency or employment, made during the existence of the relationship . . . ."). However, the sworn statements of Philip Morris researchers which were signed in March 1996, the August 1996 Florida jury verdict, the President's Executive Order signed August 23, 1996 and the September 1996 consolidation of two pending investigation" by U.S. Attorney's Offices are not cognizable on a Rule 60(b)(2) motion because this evidence is not newly discovered evidence that was in existence at the time of the order; it is simply new evidence. RULE 60(b)(2) authorizes relief from a final order based only on newly discovered evidence. See Walker v. Department of Veteran Affairs, 94 Civ. 5591, 1995 WL 625689, at *2 (S.D.N.Y. Oct. 24, 1995); Fed. R. Civ. P. 60(b)(2). Accordingly, I consider only whether the documentary evidence concerning studies by Philip Morris and the tobacco industry regarding the addictiveness of nicotine, and Philip Morris's alleged manipulation of nicotine levels, probably would have produced a different outcome on defendant's motion to dismiss.

C. The evidence probably would have changed the outcome.

On a Rule 12(b)(6) motion I must take plaintiffs' factual allegations to be true. Conley v. Gibson, 355 U.S. 41 (1957). This is the same standard I must apply to plaintiffs newly discovered evidence on a Rule 60(b)(2) motion.

As noted, I dismissed the original complaint because I found, first, that Philip Morris's statements were permissible statement. of opinion. I found that because defendants disclosed the dispute concerning nicotine, they were thereafter free to state their opinion as long as there was a genuine dispute and the opinion was reasonably supported by evidence. In the original complaint, plaintiffs proffered only one identified Philip Morris study -- the DeNoble study -- which purported to find nicotine to be addictive, and I noted that that study stated that the "termination of prolonged exposure to nicotine does not result in physiological dependence." I noted also that plaintiffs had not disputed that there was a genuine disagreement as to whether nicotine was addictive. Accordingly, I held that plaintiffs had not presented factual allegations to support a claim that defendants' statements were not permissible expressions of opinion.

Here, however, plaintiffs have presented: 1) nine briefs or reports by Company researchers or scientists and nine memoranda or notes by Company researchers or scientists discussing studies on or opinions-regarding the addictiveness of nicotine; 2) eight reports, three memoranda, and a letter from Philip Morris researchers discussing the manipulation of nicotine levels in cigarettes; and 3) a 1971 Philip Morris patent covering the use of nicotine releasing agents to incorporate exact amounts of nicotine in tobacco composition. A few of the specific documents treating the issue of the addictiveness of nicotine, and the manipulation of nicotine levels are the following: In a November 1, 1974 report, the Behavioral Research Annual Report, Doctors William Dunn and T. Shori, Philip Morris scientists, stated that consumers "smoke to achieve [their] habitual quota of the pharmacologically active components of smoke," and that stopping smoking produces "reactions. . ." not unlike those to be observed upon withdrawal from any number of habituatingm pharmacological agents." (P1. Mem., Ex. A Para. 37) This report was approved by Dr. Thomas Osdene, who was the Director of Applied Research and a Vice President of Science and Technology at Philip Morris. In a December 1976 internal memorandum to Dr. Osdene, Dr. Dunn wrote

"It is my basic premise that one of the many reasons people smoke tobacco is that it contains nicotine. An extension of the premise is that the doses of nicotine inhaled produce definite, mild, and transient neuropsychopharmacological effects which are positively reinforcing and thus promote repetition of smoking."

(Id. Para. 40) A March 1978 confidential report from a Philip Morris Research Center, entitled Exit Brand Cigarettes: A Study of Ex Smokers, stated:

"We think that most smokers can be considered nicotine seekers, for the pharmacological effect of nicotine is one of the rewards that come from smoking. When the smoker quits he foregoes [sic] his accustomed nicotine. The change is very noticeable, he misses the reward, and so he returns to smoking.

If the industry's introduction of acceptable low- nicotine products does make it easier for the dedicated smokers to quit, then the wisdom of the introduction is open to debate."

(Id. Para. 47) An undated Philip Morris draft report referring to data acquired in l992 stated:

"But the primary reason [people smoke] is to deliver nicotine into their bodies. Nicotine is an alkaloid derived from the tobacco plant. It is a physiologically active, nitrogen containing substance. Similar organic chemicals include nicotine, quinine, cocaine, atropine and morphine. While each of these substances can be used to affect human physiology, nicotine has a particularly broad range of influence.

" (Id. Para. 114) In a May 9, 1974 Smoker Psychology monthly report, Dr. Schori wrote that he had "systematically manipulated tar and nicotine parameters of cigarettes" and was currently trying to "predict nicotine/tar ratios for optimal cigarette acceptability at differing tar deliveries." (Id. Para. 74) Finally, an October 1975 report from Philip Morris researchers, approved by Dr. Dunn, on a study of "low delivery cigarettes with increased nicotine/tar ratios" stated that the study "provided evidence that the optimum nicotine to tar ratio for a 10 mg. tar cigarette is somewhat higher than that occurring in smoke from natural tobacco" and concluded that the researchers "are using the guidelines suggested by this study to attempt to make a 10 mg. tar cigarette that will equal a Marlboro in both subjective acceptability and strength.. (Id. Para. 77)

Here, plaintiffs have presented several specifically identified, as opposed to vaguely referenced, reports and memoranda discussing the addictiveness of nicotine, and evidence which was not described in the initial complaint concerning the manipulation of nicotine levels. Plaintiffs argue that the evidence concerning the manipulation of nicotine levels also make defendants' statements that nicotine is not addictive false and misleading. Based on plaintiffs' newly discovered evidence, it is not sufficiently clear that defendants' statements were permissible expressions of opinion reasonably supported by the evidence so as to justify dismissal.

Defendants argue that plaintiffs have not presented evidence that Philip Morris, contrary to its public pronouncements, believed nicotine to be addictive. Defendants implicitly argue that plaintiffs' evidence is not clear because none of the new documents state expressly that a Philip Morris researcher determined that nicotine is addictive. (Def. Mem. at 26) Defendants argue that the new evidence is simply more of the same in relation to the DeNoble study discussed in the original complaint. (Id.) Even if plaintiffs had cited Philip Morris studies which stated expressly that nicotine is addictive, defendants argue, plaintiffs have the burden of establishing that Philip Morris management believed those studies. (Def. Mem. at 27)

Here it is useful to recall the theory to which the issue of alleged addictiveness of nicotine relates. Plaintiffs' initial complaint asserted that more than half of the profits earned by defendant Philip Morris came from domestic tobacco sales, (Compl. Paras. 12, 26), and that the profitability of the tobacco division was due, in part, to the absence of regulation by the Food and Drug Administration ("FDA.). (Id. Para. 29) In essence, the theory of plaintiffs' complaint was and i. that an investor would wish to know whether the Company was in possession of material information not generally available tending to show that the product that generated half of the Company's profits was likely to be regulated by the FDA, or otherwise tightly restricted. A subset of such information would be information tending to show that the Company believed its product had characteristics that invited such regulation or restriction. Therefore, the issue on this motion is whether those additional studies suggest that plaintiffs can prove defendants were in possession of otherwise unavailable information tending to show either that cigarettes were more likely to be regulated by the FDA or otherwise restricted than the Company's statements suggested, or that the Company itself believed cigarettes had characteristics that invited such regulation or restriction. The alleged addictiveness of nicotine is one such characteristic.

With the theory of plaintiff's complaint in mind, defendants' argument that the newly discovered evidence is simply more of the same as what was presented in the initial complaint is not persuasive. Particularly at the pleading stage, when the issue relates to what Philip Morris knew or believed about its product, more of the same may be different. If Philip Morris had available to it not one but several studies tending to show that nicotine was addictive, and if the Company manipulated nicotine levels in order to take advantage of that perceived addictive quality, such evidence could show that, contrary to its public statements, the Company was aware of undisclosed facts tending to show that its products were subject to FDA regulation or other restriction.

Statements of opinion are actionable under S lO(b) and Rule lOb-5 if they are made in bad faith or are not reasonably supported by evidence available to the person or entity that issues the statements. See Goldman v. Belden, 754 F.2d 1059, 1068-69 (2d Cir. 1985) (holding that allegations that the defendants' positive predictions about the company were belied by their actual knowledge of undisclosed negative facts stated a claim under S lO(b) and Rule lOb-5 because the defendants must have had reservations about the company's ability to meet the predictions); see also Kowal v. MCI Comm. Corp., 16 F.3d 1271, 1277 (D.C.Cir. 1994) ('[P]rojection. and statements of optimism are false and misleading for the purposes of the securities laws i f they were issued without good faith or lacked a reasonable basis when made."); Herskowitz v. Nutri/System. Inc., 857 F.2d 179, 184 (3d Cir. 1988) ("An opinion or projection, like any other representation, will be deemed untrue for purposes of the federal securities laws if it is issued without reasonable genuine belief or if it has no basis."), cert. denied, 489 U.S. 1054 (1989). Here, given the newly discovered evidence plaintiffs provide, plaintiffs may be able to prove a set of facts showing that the Company's statements were made in bad faith or were not reasonably supported by the evidence available to it.

I dismissed the original complaint also because I found the Company's alleged misstatements and omissions did not rise to the requisite level of materiality to state a claim under S lO(b)and Rule lOb-5. To fulfill the materiality requirement under S lOb and Rule lOb-5, "there must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988) (citing TSC Indus.. Inc. v. Northway. Inc., 426 U.S. 438, 449 (1976)). As the Second Circuit has stated, "a material fact need not be outcome-determinative." Folger Adam Co. v. PMI Indus.. Inc., 938 F.2d 1529, 1533 (2d Cir.), cert. denied, 502 U.S. 983 (1991). "Rather, the information need only be important enough that it 'would have assumed actual significance in the deliberations of the reasonable shareholder."' Id. (citing TSC Indus., 426 U.S. at 449).

"Materiality is hard to pin down in the abstract, n Wielgos v. Commonwealth Edison Co., 892 F.2d 509, 517 (7th Cir. 1989), and the Supreme Court has emphasized that materiality is a fact-specific inquiry. Id. (citing Basic. Inc., 485 U.S. at 23940). Accordingly, the Second Circuit has held that a complaint alleging a violation of the federal securities laws may be dismissed pursuant to Fed. R. Civ. P. 12(b)(6) on the ground that the statements or omissions are not material only if the statement. or omission. "are so obviously unimportant to a reasonable investor that reasonable minds could not differ on the question of their importance." Goldman, 754 F.2d at 1067.

In the previous order I held that it could not be said that "defendants' disclosures would have altered the total mix of information available to plaintiffs when the market already had been saturated with information from other sources." Kurzweil, 1995 WL 540025, at *6. However, the original complaint identified specifically only one flawed Philip Morris study. Here, plaintiffs offer nine reports and nine memoranda regarding various studies, hypotheses and opinions as to whether nicotine is addictive. Plaintiffs offer also eight reports, three memoranda and a letter regarding Philip Morris's manipulation of nicotine. Reasonable minds could find that all of this nonpublic information would have been important to the reasonable investor as tending to indicate the Company's own belief that its products could be subject to FDA regulation or other restriction. Given the amount of new evidence, I could not properly have determined as a matter of law, on the face of the complaint, "that reasonable minds could not differ as to whether the undisclosed facts would be important to a reasonable investor. Goldman, 754 F.2d at 1067. Accordingly, plaintiff is granted relief from the September 1995 order pursuant to Fed. R. Civ. P. 60(b)(2) and the judgment is vacated. *7

I note again that this opinion is addressed only to whether plaintiffs' new evidence would have changed my previous decision. I dismissed the original complaint because I held that the Company's challenged statements were permissible expressions of opinion and, given the wealth of information already available to the public and to the market, defendants' omissions were not material. Plaintiffs' new evidence is sufficient to survive a Rule 12(b)(6) motion on those grounds. However, to state a claim under Section 10(b) and Rule 10b-5 a plaintiff must allege: (1) fraud in connection with the purchase or sale of a security; (2) the materiality of the alleged statement or omission; (3) scienter; (4) reliance; and (5) loss causation. Ivan F. Boesky Securities Litia., 848 F. Supp. 1119, 1124 (S.D.N.Y. 1994). In addition, plaintiffs invoke the presumption of reliance permitted by the fraud-on-the-market theory. However, that presumption of reliance is rebuttable and n [a]ny showing that severs the link between the alleged misrepresentation and either the price received (or paid) by [plaintiffs] . . . will be sufficient to rebut the presumption of reliance. Basic Inc., 485 U.S. at 248. In particular, defendants have cited the actual market performance of Philip Morris stock as potential evidence that plaintiffs' fraud-on-the- market theory is just that -- a theory, with no basis in reality. Plaintiffs allege that defendants' misleading statements artificially inflated the market price of Philip Morris common stock during the class period, and that once some of Philip Morris's and the tobacco industry's research was released to the public, stock prices fell. In particular, plaintiffs claim that from February 28, 1994 to April 4, 1994 the price of Philip Morris common stock fell from $60.25 to $48.625. (P1. Mem., Ex. A Para. 111) Defendants note in their sur-reply memorandum that as of the market's close on December 20, 1996 -"even after all of the 'new' disclosures to which plaintiffs point in their motion papers and reply memorandum" -- the price of Philip Morris stock was 111 5/8. (Def. Sur- Reply at 2) That argument, however, may be the subject of a summary judgment motion, see, e.g., First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 768 (2d Cir. 1994) ("[T]he fraud defendant is not liable for all losses that may occur, but only for those actually suffered."), cert. denied, 115 S.Ct. 728 (1995), not a motion addressed to the sufficiency of pleading.

IV.

Plaintiffs move pursuant to Fed. R. Civ. P. 15(a) and (d) to amend their complaint adding the newly discovered evidence, and the new evidence which did not exist at the time I decided the motion to dismiss. Rule 15(a) states that "a party may amend the party's pleading only by leave of the court . . . and leave shall be freely given when justice so requires. n Fed. R. Civ. P. 15(a). Rule 15(d) states:

"Upon motion of a party the court may, upon reasonable notice and upon such terms as are just, permit the party to serve a supplemental pleading setting forth transactions or occurrences or event. which have happened since the date of the pleading sought to be supplemented."

Leave to supplement a pleading should be freely granted n [i]n the absence of any apparent or declared reason -- such as undue delay, bad faith or dilatory motive . . . undue prejudice [or] futility of amendment." Foman v. Davis, 371 U.S. 178, 182 (1962). The same standards apply to motions under both Rule 15(a) and Rule 15(d). See Music Deli & Groceries. Inc. v. IRS, 781 F. Supp. 992, 997 (S.D.N.Y. 1991). Accordingly, plaintiffs will be permitted to file an amended complaint including the new evidence and the newly discovered evidence. Plaintiffs have not acted in bad faith and have not unduly delayed, and defendants will not be unduly prejudiced. As the Supreme Court has declared: "If the underlying facts or circumstances relied upon by a plaintiff may be a proper subject of relief, he ought to be afforded an opportunity to test his claim on the merits." Foman, 371 U.S. at 182.

* * *

For the reasons stated above, plaintiffs motion for relief from the September 1995 order is granted pursuant to Rule 60(b)(2), the judgment is vacated, and leave to replead is granted pursuant to Rules 15(a) and 15(-d).

SO ORDERED:

/s/Michael B.Mukasey

U.S. District Judge

Dated: New York, New York

April 8, 1997

ENDNOTES

*1 On October 4, 1994, these cases, 94 Civ. 2373 and 94 Civ. 2546, were consolidated with 94 Civ. 6399, State Board of Administration v. Philip Morris Companies. Inc. However, only the plaintiffs in 94 Civ. 2373 and 94 Civ. 2546 filed the pending motion pursuant to Fed. R. Civ. P. 60(b).

*2 I signed the opinion and order on September 8, 1995. It was printed on the docket sheet on September 11, 1995, but the docket sheet list. September 14, 1995 as the date of entry. For purposes of Rule 60(b) "the notation of tan order] in the civil docket as provided by Rule 79(a) constitutes the entry of the [order]." James W. Moore, Moore's Federal Practice, 160.28[2] at 60- 316 n. 19 (2d ed. 1996). Therefore, the actual date of entry, September 11, will be treated as that date of the order.

*3 Citations are to the Consolidated and Amended Class Action Complaint filed on June 30, 1994.

*4 In addition, I note that defendant's argument would create illogical results. If defendant is correct -- that a plaintiff cannot file a Rule 60(b) motion for relief from an order dismissing a case because that order is not final until judgment is entered in the case -- and if new evidence is discovered during the interim between the entry of the order and of the judgment, then a plaintiff will have lost any opportunity to move pursuant to Rule 60(b)(2). The plaintiff would not be permitted to move for relief from the order because it would be "interlocutory, H and the plaintiff would not be permitted to move for relief from the judgment because the new evidence would have been discovered before the judgment was entered. That result is contrary to the spirit of the Federal Rules of Civil Procedure. See Fed. R. Civ. P. 1 ("[The rules] shall be construed and administered to secure the just, speedy and inexpensive determination of every action.").

*5 Plaintiffs argue also that they understood that an order I issued in the State Board case on January 31, 1995 directing that no further papers be filed in connection with the motions pending barred any supplemental briefing in their case as well. (P1. Reply at 8) However, that argument has little merit because the order barred explicitly State Board's counsel from filing further papers in connection with the motion to dismiss and applied specifically to that case only.

*6 The case defendant cites, Pagovich v. Moskowitz, 93 Civ. 3195, 1994 WL 642886 (S.D.N.Y. Nov. 15, 1994), is not apposite. In Pagovich, the "newly" discovered evidence offered in support of the defendant's Rule 60(b)(2) motion was actually "discovered over six months prior to entry of judgment," and the defendant actually "knew" of the evidence for six months before judgment. Id. at *3.

*7 Plaintiffs moved also for relief from the opinion and order pursuant to Rule 60(b)(3)based on fraud and Rule 60(b)(6) for any other reason justifying relief. Because plaintiffs motion is granted pursuant to Rule 60(b)(2), I need not consider these alternative grounds.