Texas Offered $14.5 Billion in Smoking Lawsuit

Reflecting their deep desire for a nationwide tobacco truce, cigarette makers are offering to pay about $14.5 billion to the state of Texas to avoid a potentially disastrous trial in what would be the largest civil settlement in history.

Giving breathing space to negotiators, U.S. District Judge David Folsom on Friday ordered a 48-hour delay in jury selection, which had been scheduled to start Monday in federal court in Texarkana, Texas.

A spokesman for Texas Atty. Gen. Dan Morales said late Friday that negotiators have reached an agreement on financial details, and that only “nonmonetary issues” remain to be settled.

If a settlement is reached, it will mark the fifth time in six months that the once implacable industry chose settling over trying a high-profile case that could undermine its greatest ambition--protection from future lawsuits through action by Congress.

As recently as September, tobacco lawyers had vowed to fight rather than settle with Texas, which is seeking reimbursement for smoking-related health-care costs, as well as huge damages for alleged fraud and racketeering.

But with adverse pretrial rulings assuring that scathing testimony would coincide with the upcoming congressional debate on the tobacco truce, cigarette makers had little choice but to seek an out-of-court resolution, several observers said.

“The industry’s putting tremendous store by a settlement in ‘98,” said Martin Feldman, a tobacco analyst with Salomon Smith Barney. “Clearly that’s its biggest aspiration. . . . And the industry’s going to try to . . . avoid any development that dilutes prospects for a settlement.”

Industry spokesmen declined public comment, while privately acknowledging that a settlement may be imminent. One tobacco representative, who plans to be in Texas for any settlement announcement, said “I’m looking at a [suitcase] that has been in my office all week.”

The $14.5 billion, which would be paid over 25 years, is roughly $1 billion more than Texas would receive as its share of the proposed $368.5-billion tobacco deal announced last June 20. It would beat the old record set in August when cigarette makers agreed to pay $11.3 billion to settle Florida’s lawsuit on the eve of opening statements.

For the state, a settlement would eliminate the risk of losing at trial or sweating out a victory through years of appeals.

For the industry, a settlement would eliminate the daily dose of sizzling disclosures that foes of the tobacco truce could exploit to turn congressional sentiment against the deal.

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In the proposed agreement negotiated last June between the industry, state attorneys general and private anti-tobacco lawyers, the companies would pay $368.5 billion, eliminate some types of tobacco advertising and fund anti-smoking programs. In return, the industry would get immunity from the most threatening legal claims: lawsuits by the states, private class-actions and punitive damage claims by individual smokers.

Pending before Congress is legislation to implement the deal, as well as rival measures that would either extract more money from the industry or impose anti-smoking measures without providing the industry legal protections. The debate resumes later this month when lawmakers return to Washington.

Since the deal was announced last June, the industry has blinked each time it faced the prospect of a major jury verdict. In July, it escaped trial in Mississippi by settling that state’s health-care-cost recovery suit for $3.4 billion, and it settled with Florida a month later.

In September, R.J. Reynolds agreed to a $10-million settlement of a San Francisco lawsuit targeting its Joe Camel marketing campaign. And in October, the industry agreed to a $349-million settlement in a class action filed by flight attendants claiming injuries from secondhand smoke.

With a settlement in Texas, the industry would face one remaining threat of a steady drip of bad publicity during congressional debate.

That threat is Minnesota, whose anti-tobacco lawsuit is scheduled to start in 10 days. Prospects for settlement there are uncertain at best.

Facing criticism from allies for rolling over in the past, industry officials supposedly drew a line in the sand in Texas, hoping a victory there would strengthen their position in Congress. They believed they could win, and that even if they lost, the verdict would be reversed by the 5th Circuit Court of Appeals, considered to be pro-business.

“Under no circumstances will we settle this case,” industry lawyer Dan Webb told Judge Folsom in September.

But circumstances changed, and the industry did too. For one thing, the trial originally scheduled for Sept. 29 was postponed for several months when Folsom fell ill. That meant any industry victory would probably come too late to improve their standing in Congress.

Even worse for the industry, Folsom ordered the case to be tried in three phases--with the first phase to consider only the charges of fraud and racketeering. Lawyers for the state would thus spend weeks trying to prove that cigarette makers had lied and concealed the hazards and addictiveness of smoking.

And it would be months before the industry could present its most potent defense: that the state had done little to discourage smoking and had made billions of dollars by taxing cigarettes.

According to Richard Daynard, director of the anti-smoking Tobacco Products Liability Project, cigarette makers “do not dare go to trial on the question of whether they’re crooks, which is the sole question that would be before the jury in the first phase of the trial.”

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Settlement talks have been held this week in Texas and Chicago. Industry sources said the issue of attorneys fees had been a major sticking point, but a spokesman for the state said any problems in that area have been resolved.

Texas had retained private law firms to prosecute the case, promising them 15% of any recovery. Industry sources said that Atty. Gen. Morales wanted the lawyers to be paid their retainers over and above the $14.5 billion, which could mean more than $2 billion in fees.