Liggett’s Secret Papers Subject of Federal Probe

Federal investigators in a criminal probe of the tobacco industry will examine the trove of secret documents that cigarette maker Liggett Group pledged to disclose as part of Thursday’s landmark settlement of tobacco litigation, a Justice Department official said Friday.

Agency spokesman John Russell said prosecutors will review the Liggett papers for possible evidence of wrongdoing in their criminal probe. He declined to say if investigators have already obtained the documents.

In other developments Friday:

* Tobacco shares continued to slide in the wake of the Liggett agreement, in which the country’s fifth-largest cigarette maker became the first tobacco company in history to concede that smoking causes lung cancer, heart disease and emphysema; that nicotine is addictive; and that the industry targets underage youths.

* An aide to a leading antitobacco congressman in Massachusetts said the Liggett settlement will build momentum for requiring tougher and more prominent warnings on cigarettes.

* California Assembly Speaker Cruz Bustamante (D-Fresno) announced legislation intended to pressure Atty. Gen. Dan Lungren into joining the legal onslaught against the tobacco companies.

* Several Wall Street analysts--noting that jurors already believe smoking is addictive and causes cancer--predicted that the Liggett deal will have little or no impact on the outcome of tobacco litigation.

* A spokesman for an alliance of antitobacco lawyers called Liggett’s purported settlement with private attorneys “a rogue operation” and said his group had not yet decided whether to support it.

Along with Liggett’s admissions and its pledge to cough up internal documents, Thursday’s settlement also requires the financially beleaguered firm to pay one-fourth of its pretax profit over the next 25 years into a compensation fund and to affix labels to its cigarette brands warning that smoking is addictive.

The renegade cigarette maker, whose brands include Chesterfield and Eve, also vowed to help state attorneys general and private lawyers prosecute their claims against the rest of the $50-billion industry by offering company employees and executives as witnesses.

In return, Liggett will be dismissed from all of the 23 state lawsuits seeking billions of dollars from tobacco companies for the cost of treating sick smokers. In a separate agreement with one group of private antitobacco lawyers, Liggett said it will also be shielded from all individual and class-action suits.

The Liggett documents include records generated by the firm and notes of conversations between its lawyers and attorneys for other tobacco companies.

Rivals Philip Morris, R.J. Reynolds, Brown & Williamson and Lorillard contend that the conversation notes are subject to attorney-client privilege and can’t unilaterally be disclosed by Liggett.

On Thursday, a few hours before the settlement was announced, those companies got a North Carolina judge to issue a restraining order barring Liggett from giving the disputed documents to plaintiffs.

Although they may ultimately be withheld from civil plaintiffs, Russell of the Justice Department said investigators will still be able to examine them for evidence of criminal wrongdoing.

Tobacco executives had little comment on Russell’s remarks. Said R.J. Reynolds representative Peggy Carter: “Obviously, we haven’t seen the Liggett documents, so we have no idea what they include and what interest the Justice Department may or may not have in them.”

However, financial analysts voiced doubt that the documents will prove any more incriminating than those already made public. “They won’t shock people,” said Gary Black, tobacco analyst with Sanford Bernstein & Co.

“Juries already know that smoking causes cancer. Juries already know that nicotine is addictive,” Black said. However, “personal choice” remains “the dominant issue,” he said.

But tobacco stocks continued to slump, with Philip Morris falling $4.375 to $111.50 on the New York Stock Exchange, RJR Nabisco losing 50 cents to $31, and Loews Corp., parent of Lorillard, sinking $5.125 to $93.375.

Brooke Group, parent of Liggett, inched up 12.5 cents to $5.

An aide to antitobacco Rep. Martin Meehan (D-Mass.) said Friday that the admissions by Liggett should be helpful to lawmakers pushing a package of anti-smoking initiatives.

Antismoking lawmakers will soon introduce legislation to strengthen cigarette warning labels and increase the size of warnings on advertisements, which are now all but invisible on some types of ads, said Meehan aide Cliff Douglas.

An additional measure would require tobacco firms to disclose all ingredients in cigarettes and the hazardous components of cigarette smoke, he said.

“We believe that the admissions by Liggett will boost support in Congress for . . . these measures,” Douglas said.

Observers said the Liggett deal is likely to make the other companies more eager to pursue a global settlement of tobacco litigation.

“After four decades of spending hundreds of millions of dollars to make sure that nothing like this would ever happen,” the tobacco companies “find themselves looking into the abyss,” said Josh Kardon, chief of staff to Sen. Ron Wyden (D-Ore.).

In Sacramento, Bustamante said Friday that he will introduce the legislation that Lungren said he needs to successfully sue the industry to recover costs of treating smokers.

The bill would repeal the immunity from product liability claims that the industry won in a tort reform bill in 1987.

Although Lungren has said he can’t defeat the industry because of the 1987 law, critics contend he could go forward with laws on the books.

The new bill, to be introduced as urgency legislation on March 31, “will remove any perceived obstacle” to a Lungren suit, Bustamante said.

Meanwhile, a spokesman for an alliance of 62 law firms involved in antitobacco litigation said the group had not decided whether to support the portion of the Liggett settlement that covers private class actions and individual claims.

John Coale said his group, which has filed antitobacco class-action suits in 15 states, is not a signatory to the proposed agreement, filed Thursday in a state court in Mobile, Ala.

That part of the settlement will not become final until after a hearing in July at which opponents can voice their objections. The deal would bar any future private lawsuits against Liggett.

Times staff writer Max Vanzi in Sacramento contributed to this report.