Tobacco Firms Won’t Settle Suit With Texas

The embattled tobacco industry drew a line in the sand Monday, declaring that it would not settle Texas’ $14-billion suit against the nation’s cigarette companies and would go to trial Sept. 29 in federal court here.

The development marks a significant shift in the industry’s recent strategy of settling state Medicaid lawsuits and comes amid growing problems for the proposed national settlement that was announced with great fanfare in June.

Dan K. Webb, the former federal prosecutor who represents Philip Morris Cos. and is the industry’s lead lawyer in the Texas case, told a large group of reporters on the steps of the federal courthouse that the tobacco industry has told Judge David Folsom that “under no circumstances will we settle this case” while Congress is still considering the proposed national agreement.

A few moments later, Texas Atty. Gen. Dan Morales told reporters that the odds of a settlement “are essentially zero.”

The two lawyers made their dramatic announcements in this small northeast Texas city after they and the chief executives of four tobacco companies met in chambers with Folsom.

“It would send the wrong message” to keep settling cases one by one, Webb said, referring to the fact that the industry recently agreed to pay Mississippi $3.4 billion and Florida $11.3 billion in hopes of staving off negative publicity while Congress was considering the proposed $368.5-billion national settlement.

“This is a case that needs to go to trial to establish that we have done nothing wrong,” said Webb, who was the U.S. attorney in Chicago during the Reagan administration.

On another front Monday, R.J. Reynolds Tobacco Co., the nation’s second-largest tobacco manufacturer, agreed to settle a major unfair-business-practices case that alleged that the company’s Joe Camel advertising campaign targeted minors in violation of California consumer-protection laws.

RJR agreed to pay a dozen California cities and counties, including Los Angeles, $10 million, by the middle of the month to fund an anti-teen-smoking advertising, education and enforcement campaign as a condition of the settlement.

Coloring the industry’s decision in Texas is the fact that the national settlement proposal has yet to garner the unqualified endorsement of a single member of Congress and has been severely criticized by a numerous lawmakers and public health organizations. President Clinton has indicated it would have to be strengthened in several respects in order to secure his endorsement.

Several leading analysts said the move in Texas made sense. Since it had become clear that Congress would not enact the proposed $368.5-billion national settlement this year, experts say, the industry realized it had to make a choice of where to fight its next major battle--either here or in Minnesota, whose multibillion-dollar case against the tobacco companies is scheduled to start in mid-January in St. Paul.

“They recognize that they can’t keep caving forever,” said litigation analyst Calvert D. Crary at Auerbach, Pollak & Richardson, an investment firm in Stamford, Conn.

“If you are a big corporate defendant and you have many cases against you, then you want to take your best cases to trial first. They recognize that if they don’t go to trial in Texas, they’ll have to in Minnesota, where Atty. Gen. [Hubert] Humphrey said he won’t settle and they’ll get ripped there.”

So far, 41 states, including California, have sued the industry.

Gary Black, analyst at Sanford Bernstein & Co. in New York, also said he felt the industry had made the right move. He said that for a host of reasons, the cigarette companies feared Minnesota’s case more. The industry already has received a slew of unfavorable rulings there, and all of them have been upheld on appeal.

Moreover, Black said that by taking a stand here, the industry was “sending a message” to Congress and the White House that there will be no more hefty payments to states unless there is a national resolution.

However, Morales said he was pleased that Texas would be the site of the first massive Medicaid recoupment suit filed against the $50-billion industry.

“We believe the evidence against the industry is overwhelming,” the attorney general said.

Texas, which was the seventh of 41 states to sue the industry, is seeking about $14 billion in damages, and that amount could be trebled if the state prevails on the racketeering claims that are part of the case.

The state is seeking to recover money spent treating smoking-related illnesses for Medicaid patients in Texas. The core of the suit, like those filed by 40 other states, is the contention that for at least four decades the tobacco industry suppressed information about the health hazards of its products and manipulated the nicotine level of cigarettes in order to hook smokers.

In addition, the suit charges that the industry targeted advertising at children to develop news smokers to replace adults dying from a variety of tobacco-related diseases.

The suit accuses the cigarette companies of violating a bevy of state and federal laws, including those pertaining to racketeering, mail and wire fraud, conspiracy and deceptive business practices.

Late Monday, however, Folsom issued two rulings that definitely should help the industry in the case.

He dismissed all the antitrust claims, some of the deceptive-practice claims and some of the negligence counts. In addition, Folsom ruled that he would not permit the state to use eight internal industry documents that five Florida judges previously ruled contain evidence that the industry had used attorneys to suppress information about the health hazards of cigarettes.

Webb said he was very pleased with both rulings but said it was too early assess their ultimate impact on the case. Folsom still has several other major issues pending before him.

Harry Potter, Texas deputy attorney general, said he was disappointed by the judge’s ruling on the eight documents but contended that the state would have another opportunity to have them admitted later in the case.

Meanwhile, in the Joe Camel case, Reynolds also agreed to release box loads of previously confidential internal documents about the Joe Camel campaign.

As part of the settlement of the hard-fought case, originally filed in 1991, the company acknowledged that the suit, “was an early significant and unique driver of the overall legal and social controversy regarding underage smoking that led to the decision to phase out the Joe Camel campaign.”

In the face of mounting criticism over the smirking cartoon character that had become the focus of nationwide outrage over underage smoking, RJR announced July 10 that it would retire Joe Camel.