Tobacco Firms Buoyed as Suit Settlements Near
Buoyed by recent court victories and the demise of tough, anti-smoking legislation in Congress, the tobacco industry finds itself in a surprisingly strong position as it seeks to settle three dozen multibillion-dollar lawsuits filed by state attorneys general.
Helpful legal developments, ideal timing, and even the composition of the team negotiating for state attorneys general all seem to be working in the industry’s favor.
As a consequence, the nation’s major cigarette companies are “flexing their muscles” in the negotiations--resisting demands for public health concessions, including limits on where and how they can market their products.
The talks are now in recess, but lawyers close to the negotiations say a mid-September deal seems likely. One important factor is likely to be the stance of California’s attorney general, Dan Lungren. California would receive the largest share of any deal. In turn, the industry is worried about the potentially huge damages that could be awarded if California--which is allied with four of the state’s largest cities and Los Angeles County in the litigation--were to prevail at trial.
The new talks, which began last month, are aimed at resolving huge lawsuits by 36 states and also at settling potential claims of 10 states that have yet to file.
The deal could bring a windfall of $200 billion to the states over the next 25 years--including about $23 billion to California--with the payments coming from a cigarette price increase of about 35 cents per pack.
Although the agreement would be the most costly and complex in the annals of civil litigation, it is but a slimmed-down version of the $368.5-billion settlement proposed in June of last year. That deal fell apart after Congress failed to pass legislation needed to put it into effect. In addition to compensating the states, it would have funded federal anti-smoking programs.
The original deal came under scathing attack from health and consumer groups as too soft on the industry. At the same time, the Republican leadership in Congress opposed it, arguing that it involved a big tax increase.
Now, the collapse of the deal seems virtually certain to leave public health advocates with a new settlement that will provide them less than they could have gotten a year ago.
Recent Events Bolster Tobacco Firms
The “Plan B” that has risen from the ashes of the original deal envisions a more conventional out-of-court settlement that will not require that Congress make changes in federal law.
While a settlement would eliminate the most threatening lawsuits--those filed by the states to recover smoking-related health care costs--it will not provide the broader legal relief to the industry that would have been provided by last year’s settlement. Those provisions would have needed congressional approval.
Even so, the industry’s position has been fortified by recent events, including:
* Favorable rulings in key court cases. Until recently, the industry’s decision to fork over $38 billion to settle the four state cases with the earliest trial dates--Mississippi, Florida, Texas and Minnesota--could only leave the rest of the states feeling their oats.
But last month, as the new round of talks was just beginning, an Indiana judge rattled plaintiffs’ nerves by dismissing Indiana’s case in its entirety. That loss reminded attorneys general that failure to settle could leave them empty-handed.
Thursday, the industry won another victory when a state appellate court in Florida ruled that a trial that had resulted in a $1-million verdict against Brown & Williamson Tobacco Corp. had been held in the wrong county. The ruling could lead to the verdict being overturned.
Finally, the next of the cases brought by states that is scheduled for trial--a lawsuit by the state of Washington set for Sept. 14--is considered weaker than the first four.
The judge in that case has scaled back how much the state could recover on one of its potentially most lucrative claims--the demand that the companies reimburse the state for the cost of health care provided to smokers eligible for Medicaid--and has ruled that the companies can argue to the jury that cigarette taxes the state collected over the years should be counted against any damages the industry may be ordered to pay.
The companies have done even better in repulsing private class action suits, of which dozens are pending. Originally, the threat of class actions was one of the factors spurring the industry to deal.
Now, however, the risk from class actions appears to be receding. In recent months, federal courts in several states have refused to grant class action status to several lawsuits--ruling that individual smokers’ cases were sufficiently different that their claims would have to be heard one at a time.
Another string of industry victories have come with dismissal of class actions filed on behalf of labor union health care funds that sought reimbursement of money spent to treat sick smokers.
* The profile of the attorney general negotiators. By background and track record, the current negotiators for the states are more conservative and not as aggressively anti-tobacco as those who helped craft the original deal.
Mississippi Atty. Gen. Mike Moore, a Democrat, who led the original negotiations, frequently compared the cigarette executives to leaders of Colombia’s cocaine cartels. His team included several others who were among the first to drag the industry into court, including Florida Atty. Gen. Bob Butterworth and Connecticut Atty. Gen. Richard Blumenthal.
That original team invited a veteran anti-smoking activist, Matt Myers, general counsel of the National Center for Tobacco-Free Kids, to participate directly in the negotiations. Myers’ involvement was part of an overall effort to gain not just money for the states, but also basic changes in how the industry markets its products. Myers was not invited back to the current round of talks.
Those at the table now include Republicans Lungren and Gail Norton of Colorado, who were among the last of 40 attorneys general to file suit, and two others--Michael F. Easley of tobacco stronghold North Carolina and Heidi Heitkamp of North Dakota--who have not yet sued at all.
Joe Rice, a Charleston, S.C., lawyer whose firm represents more than two dozen states, is a holdover from the first round of talks and provides some continuity.
Washington Atty. Gen. Christine Gregoire, a Democrat and the lead negotiator, also served on the original bargaining team. But the trial of her case is less than six weeks away, and while Gregoire publicly voices confidence that the state will win, some observers say she appears fearful and eager to settle.
“Gregoire is leaving everyone with the impression that she expects her case to tank,” said one anti-tobacco lawyer, who would not speak for attribution. Gregoire and her aides deny this, and a participant from another state said Gregoire “seems utterly confident” about her chances at trial.
By contrast, the industry has the services of the same negotiating team it used last year--led by New York attorneys Meyer Koplow of Wachtell, Lipton, Rosen & Katz and Arthur Golden of Davis Polk & Wardwell, and Chicago lawyer Steve Patton of Kirkland & Ellis. One of the attorney general participants in the talks said the government representatives were very mindful that they were dealing with people on the other side of the table with considerably more negotiating experience.
Smoking Foes Lose Credibility With Some
Another reason negotiators may be less inclined to take a hard line on public health measures is that attorneys general felt burned by anti-smoking advocates, who pushed last year to secure a broad array of anti-smoking concessions and then trashed the results.
The anti-smoking movement “destroyed its credibility” with the attorneys general, said a member of the 1997 anti-tobacco negotiating team.
Lungren and other negotiators, however, have insisted that they will not settle for a deal that does not, in Lungren’s words, “rightfully compensate California taxpayers, as well as hold the industry accountable for the way they market to children.”
Timing, too, provides the industry some advantage. With the November elections approaching, attorneys general seeking reelection or higher office may not want to risk snubbing a rich settlement for the huge uncertainties of a courtroom battle.
Some of the obstacles to a deal seem imposing, including what health measures an agreement should contain.
A second issue is how many states will sign onto a deal. An agreement probably could survive if a few attorneys general hold out, but the industry would have less incentive to settle if a large number decide to try their chances in court. At this point, attorneys general of at least seven states--Connecticut, Iowa, Maryland, Michigan, Missouri, New Mexico and Wisconsin--are considered possible holdouts.
Then there is the question of how to craft effective “renegade” provisions so that cigarette makers don’t lose business to foreign cigarette makers and small domestic firms. Major cigarette companies fear that smaller firms that are not party to the settlement will not go along with tobacco marketing curbs that might be called for in a deal and would lower their prices in an attempt to undercut the major companies.
Strong language in this area is more important to some companies than others. Brown & Williamson Tobacco Corp. is particularly dependent on sales of cheaper generic brands and would be the big loser if its price-conscious consumers flocked to smaller brands that did not raise their prices, said Gary Black of Sanford C. Bernstein & Co., a leading tobacco analyst.
