In an unprecedented admission by a tobacco company, Liggett Group acknowledged Thursday that smoking causes cancer and heart disease, nicotine is addictive and the industry markets its products to underage youths.
The historic concession came as the renegade cigarette maker settled lawsuits by 18 states seeking to recoup billions of dollars spent treating sick smokers. In a separate agreement, Liggett said it had settled about 20 huge class-action suits as well as individual claims seeking damages for smoking-related ailments.
The watershed agreements call for Liggett, the industry's weakest player financially, to make settlement payments and to actively assist attorneys general and private lawyers across the country in prosecuting dozens of massive lawsuits against the $50-billion-a-year industry.
The deal further requires Liggett--maker of Chesterfield, L&M; and other brands--to turn over a vast trove of internal documents and to offer its employees and executives as witnesses in upcoming tobacco trials.
Liggett also promised to abide by Food and Drug Administration curbs on youth-oriented tobacco marketing that the industry has challenged in court. And it pledged to place labels on its cigarette brands warning that smoking is addictive.
Liggett, the smallest of the five leading U.S cigarette makers with less than 2% of the market, will also pay 25% of its pretax profits for the next 25 years into a settlement fund. With company profits of about $8 million last year, the financial gain for plaintiffs will be modest.
But ebullient attorneys general, who announced the deal at a packed press conference in Washington, said strategic considerations, not money, were the prime considerations.
"Never before has any tobacco company . . . acknowledged that cigarettes cause cancer, nicotine is addictive and the industry targets its marketing to children," said Connecticut Atty. Gen. Richard Blumenthal.
"Liggett has now made those admissions and will give us critical evidence--documents and cooperating witnesses--to prove our case against the other defendants."
Minnesota Atty. Gen. Hubert H. Humphrey III likened the settlement to "busting a street drug dealer to get to the Colombia drug cartel."
And Arizona Atty. Gen. Grant Woods declared it "the beginning of the end for this conspiracy of lies and deceptions. . . . Someone is finally telling the truth."
The deal could build momentum for an eventual global settlement of litigation and regulatory attacks on the embattled industry, although such a deal would need approval by Congress and the White House and is considered at least several months away.
Tobacco stocks tumbled on news of the agreements, marking the third time in a week that share prices have been pummeled by legal developments in the smoking wars.
But industry leader Philip Morris, in a defiant response to the deal, declared that the agreement "changes nothing. Philip Morris . . . will continue to defend vigorously against the meritless lawsuits filed by the states seeking to recover health care expenses," the company said.
Under the agreement, Liggett will surrender a storehouse of internal documents, waiving its right to claim confidentiality for papers that ordinarily would be covered by the attorney-client privilege.
Certain of the documents involve joint discussions between attorneys for Liggett and its rivals--and are considered privileged by the other firms.
In a countermeasure aimed at Liggett and anti-tobacco plaintiffs, Philip Morris, R.J. Reynolds, Brown & Williamson and Lorillard Inc. on Thursday obtained a restraining order from a state court judge in the Reynolds' stronghold of Winston-Salem, N.C., barring Liggett from coughing up documents deemed privileged by the other companies.
However, the Liggett agreement provides for such disputed documents to be filed with each of the courts presiding over tobacco lawsuits--allowing each judge to determine which should remain confidential and which should be given to plaintiffs. Officials said those documents are already being delivered to court clerks throughout the country.
Mushrooming litigation had placed such strain on Liggett that Philip Morris had been paying a portion of its legal fees.
Bennett S. LeBow, chairman of Brooke Group Ltd., Liggett's parent firm, said the deal removed the threat of "potentially bankrupting judgments and will permit us to get on with running our business."
"We believe that peaceful coexistence on reasonable terms makes far more sense for the tobacco industry than continuing denial of the legal and political reality of today's situation," LeBow said in a statement.
Thursday's agreements expand the settlement Liggett reached in March 1996 with five of the attorneys general who had filed the earliest health cost recovery suits. The new deal covers the 17 states that have filed claims since the 1996 agreement, along with Minnesota--which had refused to sign the original deal.
The prior agreement also had extricated Liggett from a huge nationwide class-action suit filed in New Orleans. But that part of the deal became moot last May when the 5th Circuit Court of Appeals refused to allow the case to proceed as a national class-action.
In the 10 months since that decision, however, lawyers involved in the nationwide suit have filed about 20 new class-actions on a state-by-state basis. Thursday's agreement will dismiss Liggett from those cases.
Among the deal's uncertainties are its potential impact on a continuing criminal probe of the industry by the Justice Department.
That investigation is focused, in part, on whether tobacco companies persistently lied to shareholders and government officials about the health consequences of smoking--and whether top industry executives committed perjury when they testified before Congress in April 1994 that they did not believe smoking was addictive.
Among those testifying was Edward A. Horrigan, then chairman and CEO of Liggett and previously a longtime executive of R.J. Reynolds. "I believe nicotine is not addictive," Horrigan said.
Horrigan, who retired from Liggett last year, could not be reached, and a Justice Department spokesman said he could not comment on "individuals that may or may not be under investigation."
Tobacco industry officials, in a scathing attack on LeBow, noted that he, too, had given sworn testimony contradicting the stand he took in Thursday's settlement.
They released portions of a transcript of LeBow's 1993 deposition in a Florida tobacco case in which he discussed quitting smoking cold turkey.
"You don't believe that tobacco is addictive?" LeBow was asked.
"No, I do not," he replied.
LeBow also said "I don't know" when asked if smoking causes lung cancer.
LeBow had attempted to use last year's settlement with five attorneys general in a failed attempt to take over RJR Nabisco. And tobacco officials Thursday suggested that LeBow's desire to enhance struggling Liggett's appeal to a potential merger partner was behind the latest deal.
But the complex agreement offers limited benefits to a merger partner. In the deal, the attorneys general agreed not to oppose the sale of non-tobacco assets by a merger partner unless the sale were engineered to avoid a judgment. They also agreed that a tobacco firm merging with Liggett would not have to post an appeal bond while challenging an adverse judgment in a tobacco case.
Meanwhile, California Atty. Gen. Dan Lungren, who has refused to sue the industry, said Thursday that he might join the legal assault if state lawmakers were to repeal a 1987 law that immunized tobacco companies from product liability claims.
"Providing we get a change in state law, we could join these lawsuits and participate in the Liggett settlement," Lungren said. Anti-tobacco foes have contended that Lungren could sue under existing laws.
Stolberg reported from Washington and Levin from Los Angeles. Times staff writer Dan Morain in Sacramento also contributed to this story.
* ANTI-SMOKING ADS: The Wilson administration launched a major new anti-smoking advertising blitz. A3