Mississippi Settles Its Tobacco Industry Suit

Mississippi Atty. Gen. Michael Moore announced Thursday that the state has settled its landmark health care lawsuit against the tobacco industry for nearly $3.4 billion, guaranteeing one of the nation’s poorest states a major cash infusion regardless of whether Congress ultimately enacts legislation resolving tobacco litigation around the country.

Moore’s announcement came less than a week before Mississippi’s case seeking to recover tax money spent treating sick smokers was scheduled to go to trial and represented another major milestone in his crusade against the nation’s cigarette companies.

Just two weeks ago in Washington, Moore announced that a group of attorneys general had reached a $368.5-billion nationwide litigation agreement with the industry. But since that settlement requires congressional approval--a process that is likely to take months and could eventually fall apart--Moore sought a separate agreement that would guarantee major sums of money for Mississippi in return for calling off the trial. Moore had refused to delay the trial pending congressional action.

The agreement provides that Mississippi receive the first $170 million by July 15, marking the first time that the nation’s major cigarette companies--Philip Morris, R.J. Reynolds, Brown & Williamson and Lorillard--will have actually paid any damages in four decades of litigation. (Mississippi and 21 other states reached a separate settlement with Liggett, which has only 2% of the U.S. market, in March.)

The remainder will be paid out in increments over the next 25 years. Mississippi’s booty is larger than all but a handful of major civil settlements in the history of the country and is almost four times the amount of damages Mississippi was seeking in its case.

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Longtime tobacco foe John Banzhaf, a law professor at George Washington University, said the size of Thursday’s settlement was a sign of how much the industry wanted to avoid a high-profile trial where some of its most damaging internal documents would be aired in public. And, he said, it was also a sign that the tobacco industry might be willing to pay even more than the $368.5 billion to eventually reach a national resolution.

Tobacco industry analyst Gary Black agreed in part, saying that the cigarette companies clearly would benefit by having Moore in Washington advocating the virtues of a national settlement rather than bashing them in court.

“Clearly you’d rather have his time spent lobbying rather than doing his case; he’s a great cheerleader,” said Black, who works for Sanford C. Bernstein & Co. in New York.

On Thursday, a beaming Moore held a press conference to announce the settlement in Jackson, the state capital. Surrounded by family, friends and the attorneys who would have gone to trial with him next week, Moore proclaimed that “Mississippi is very proud of its leadership role in this tobacco fight.”’

Standing right behind Moore and looking equally jubilant was his old friend, trial lawyer Richard Scruggs, whose firm has spent about $5 million underwriting pretrial costs in Moore’s case and almost 20 others in which his firm is serving as special counsel.

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Scruggs, who stands to make millions in attorneys fees from the settlement, said, “I obviously feel elated we were able to achieve this monetary resolution for Mississippi, but we all will be extremely disappointed if the public health goals are not enacted into law.”

Since Congress is not expected to give serious consideration to the proposed agreement until after Labor Day, the industry clearly has an interest in resolving two other massive Medicaid recoupment cases that are set for trial in the next three months. Black predicted that Florida, whose $2.7-billion Medicaid suit is set for trial on Aug. 1, would settle within the next few weeks.

However, Florida Atty. Gen. Robert Butterworth said that the two sides are far apart and stressed that his trial team is ready to go forward. But Butterworth also said in an interview Thursday that he expected the industry to come back with a considerably better offer in the next few weeks. “They almost have to,” he noted.

Harry Potter, special assistant attorney general of Texas, whose case is set for trial on Sept. 29, said Texas is not in negotiations with the industry now, but he said it was possible that a resolution could be reached near the start of the trial.

The Mississippi settlement, and any others reached with states in the coming weeks, would be superseded if Congress and the president reach agreement on an overall package.

Meanwhile, U.S. Sen. Frank Lautenberg (D-N.J.), one of the tobacco industry’s staunchest foes in Congress, plans to introduce legislation with harsher terms than are currently in the proposed settlement.

Lautenberg aide Jeff Whelan said the senator’s bill would be based on recommendations expected next week from a special advisory panel on tobacco policy, chaired by former Surgeon General C. Everett Koop and former Food and Drug Administration Commissioner David A. Kessler.

The two have already criticized several provisions of the settlement that Moore, Butterworth and three other attorneys general negotiated with industry representatives.

Kessler and Koop have been particularly critical of provisions that would make it difficult for the FDA to decrease the amount of nicotine in cigarettes, and they maintain that the penalties it would impose on cigarette companies if smoking by minors doesn’t go down dramatically are insufficient.

Other critics have said that the agreement places undue restrictions on future lawsuits against the industry and that the industry, which had $7.7 billion in profits last year, should face a higher price to settle.

“The industry certainly has the ability to pay . . . far more,” said Rep. Henry A. Waxman (D-Calif.) “They have an addicted customer base that will pay higher prices,” Waxman said, referring to the anticipated 50- to 75-cents-a-pack price hike the companies are expected to levy to finance the settlement.

Minnesota’s Hubert H. Humphrey III, the second attorney general to sue the industry and a critic of the national settlement, said Thursday’s announcement “is an acknowledgment that aggressive pursuit of the states’ lawsuits is the best path to justice. The over $3 billion settlement sets a minimum floor for those states with antitrust, consumer fraud and treble-damage claims that were not even alleged in the Mississippi case.”

The agreement provides that Mississippi, with about 1% of the nation’s population, would get about 1% of the overall settlement pot. But in what amounts to a bonus for settling first, Mississippi will get 1.7% of the $10 billion the industry is supposed to pay upfront if the national settlement is enacted into law.

Although Moore was clearly happy about the settlement, he stressed that his efforts will not abate. He said that “the tremendous public health advancements” in the national settlement, including advertising restrictions, a billboard ban, curbs on marketing to children, funding for children’s health, a national smoking cessation program and FDA enforcement can only be achieved through congressional action.

Echoing Moore, the industry released a statement saying that Thursday’s settlement, while resolving “certain legal and financial issues in one state,” does not address “broader issues of concern in Mississippi and throughout the nation. . . . Today’s state action ends one case, but it does not end the need for a national solution of the tobacco conflict.”

The industry said it planned to work with Moore and other attorneys general to enact the federal legislation embodying their national settlement.

Thursday was clearly a day of great personal triumph for the 45-year-old Moore.

Three years ago, he sued the major cigarette companies and their trade associations in his blue-collar hometown of Pascagoula, utilizing a novel theory that the tobacco companies had to compensate the state for the money Mississippi expended as a consequence of the industry’s 40-year conspiracy to suppress information about the hazards of smoking and the addictive character of nicotine.

When Moore filed that suit on May 23, 1994, an R.J. Reynolds spokeswoman called it “an unprecedented ploy.” Some critics branded him as an overly aggressive, publicity-hungry prosecutor, while others dismissed him as a modern day Don Quixote vainly going to war with a seemingly impregnable industry that had never paid a dime in damages and whose executives vowed to never settle a case.

But as time went on and Mississippi’s case survived the industry’s well-financed legal challenges, Moore’s idea--conceived in coordination with three other University of Mississippi Law School graduates, all of whom joined him at the press conference--caught fire. Thirty-nine other states, including California, eventually followed his lead and filed similar Medicaid recoupment suits.

The suits together posed what Stanford University law professor Robert Rabin termed “the most ominous legal threat” the industry had ever faced and forced the tobacco companies to the bargaining table.