Formula Set Up to Divide State Tobacco Suit Funds

Lawyers for the state of California and local governments have reached an agreement that could send $2.8 billion over 25 years to Los Angeles County if state attorneys general settle the current raft of lawsuits against the nation’s tobacco companies.

The proposed formula, The Times has learned, could also send about $287.5 million to the city of Los Angeles.

Those amounts would represent the county and city shares of about $23 billion that California is expected to garner from a nationwide settlement with the tobacco companies. The national total seems likely to end up being in the range of $200 billion, according to lawyers close to settlement talks, which appear headed toward a conclusion in September.

The formula for dividing California’s share of any settlement was resolved this week by a memorandum of understanding among lawyers for Atty. Gen. Dan Lungren, Lt. Gov. Gray Davis, the Los Angeles County Board of Supervisors, San Francisco City Atty. Louise Renne and a former San Diego teacher, each of whom is named as a plaintiff in several massive suits against the industry.

In mid-July, a judge in San Diego consolidated the five major anti-tobacco cases in California. The cases involve two basic types of claims. One is an attempt by officials to recoup money that they claim to have spent over the years paying health care costs for smokers eligible for government programs. The other is a series of allegations of fraud committed by the tobacco companies.

Los Angeles County Supervisor Zev Yaroslavsky, who has taken a lead role for the supervisors in their suit against the cigarette manufacturers, praised the pact but cautioned that a settlement is not a certainty.

“It’s remarkable that the biggest local government entities in California have managed to agree to an apportionment of money that may not exist at all,” Yaroslavsky quipped.

If all goes well, he said, the agreement will provide a huge windfall for cash-strapped Los Angeles County. But he stressed that “tobacco expenses will be an ongoing problem for us.”

The pact would bring slightly more than $100 million a year to the county for the next 25 years, he noted. But the county estimates that its annual expenses for treating tobacco-related illnesses are about $300 million.

The 19-page accord provides that any money obtained from the tobacco companies--either from a settlement or from litigation-- be split up under the same allocation formula: Half the money would go to the state. Of the remaining half, 10% would be split equally among four large cities--Los Angeles, San Diego, San Francisco and San Jose--that have sued the industry. The rest of the money would be divided among California’s 58 counties on a per capita basis.

Los Angeles County would get by far the largest share because it contains more than a quarter of the state’s population.

Under the formula, if the state receives an overall $23 billion, Orange County would receive roughly $725 million over 25 years. Ventura County would receive just over $200 million, and San Diego County would receive about $825 million. The city of San Diego would receive the same amount as the city of Los Angeles.

The tobacco industry already has agreed to pay $38 billion to settle with four states, and negotiations to resolve the remaining suits--launched after national tobacco legislation foundered in the U.S. Senate in June--have been going on for more than a month.

Tracey Buck-Walsh, special assistant attorney general, who played a key role in negotiating the agreement among the California officials, described the arrangement as “both a blueprint for a working relationship as we prepare for trial and a mechanism for settlement.” Buck-Walsh, who represents Lungren in talks with the cigarette makers, said that the unity pact would give California more muscle at the bargaining table.

“This is a very positive step,” said Renne, who filed the first lawsuit against the industry on behalf of a local government. In that suit, San Francisco has four public health organizations as co-plaintiffs--the California Medical Assn. and Bay Area chapters of the American Academy of Pediatrics, the American Cancer Society and the American Heart Assn. Each of those groups has strong views on what ought to be in a settlement.

Indeed, the agreement reached this week provides that any of the plaintiffs in the five consolidated cases can opt out and go to trial if they don’t like the terms of a national settlement.

“Everyone still gets to evaluate their own cases,” said San Diego lawyer Patrick J. Coughlin, who represents San Diego, San Francisco and several other counties and who played a key role in negotiating the California agreement. Coughlin was also the lead litigator in a suit against R.J. Reynolds Tobacco Co. that was settled last year. The suit involved the company’s controversial Joe Camel marketing campaign.

“But it’s great that the cities and counties and the state are united in looking at any potential settlement,” he added.

Yaroslavsky and the rest of the supervisors were briefed on the agreement earlier this week by attorneys Mark Robinson of Laguna Niguel and Bruce Broillet of Santa Monica, who represent the county in its suit against the industry.

Lungren has used state lawyers to pursue his case, while private lawyers have worked on all the other cases. The agreement notes that the private lawyers are “sensitive” to the issue of the size of their fees and will seek to recover fees from the companies. In any case the fees “shall in no way go to reduce” the amount recovered by the public entities, the agreement states.

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

How Tobacco Settlement Money Would Be Divided

Lawyers for local governments and the state of California have worked out a formula for dividing up any money they win in their lawsuits against tobacco companies. The suits aim to recoup money that the states, cities and counties spent on health care for smokers. Negotiations aimed at settling the lawsuits are close to a conclusion, the lawyers say.

The formula:

For every dollar won:

* 50% to the state

* 50% to the counties and cities

****

Counties’ and cities’ share:

* 10% divided equally among four cities that sued the companies (Los Angeles, San Diego, San Francisco and San Jose)

* 90% divided among the state’s 58 counties on a per capita basis (Los Angeles County has about 28% of the state’s population.)