Judge Dismisses Indiana’s Tobacco Suit

A judge dismissed Indiana’s lawsuit against U.S. cigarette companies that sought to recover Medicaid money spent treating ill smokers, the first of 41 state claims to be completely struck down.

Marion County Superior Court Judge Gerald Zore dismissed the 17-month-old case filed by state Atty. Gen. Jeff Modisett, who said he would appeal the ruling.

The decision should give momentum to negotiations between the states and tobacco companies including Philip Morris Cos., RJR Nabisco Holdings Corp. and others. The states, led by Washington Atty. Gen. Christine Gregoire, are to meet next week to continue working on an agreement that would settle their suits in exchange for $196 billion over 25 years from the industry and restrictions on how cigarettes are marketed.

“This gives Gregoire some ammo to browbeat those attorneys general who say they should hold out for more money or more marketing restrictions,” said analyst Gary Black of Sanford C. Bernstein & Co.

The negotiations include representatives of the states that haven’t settled, including California. Four states have already settled their cases with the industry for more than $36 billion.

“All the parties understand the frailty of the state Medicaid claims, so this decision is unlikely to influence the current differences between the two sides,” said Salomon Smith Barney analyst Martin Feldman.

Shares of industry leader Philip Morris fell 50 cents to close at $41.44, while RJR sank 75 cents to $24.13 in New York Stock Exchange trading.

Zore, in a terse two-page order, said the harm to Indiana was too remote from the tobacco industry’s alleged fraud in concealing the dangers of smoking.

Modisett called the ruling “outrageous,” noting that the judge had to assume all of the facts in the 120-page suit alleging a conspiracy to hide smoking risks were true--and then find that he didn’t have the authority to sue.

“This order throws out causes of action that, at this point, the industry hasn’t even challenged,” Modisett said.

In the meantime, however, he said it provides grist for the negotiating process with the tobacco industry.

“This supports the idea that we need a national solution and a national settlement,” said Modisett, whose case sought hundreds of millions of dollars.

States have had mixed success in other pretrial rulings. Most cases have been enhanced by the admission of previously secret documents from industry attorneys who influenced research into safer cigarettes.

All it takes to win before a jury, however, are strong facts and at least one valid legal theory. Zore is the first judge to find no such theory.

“It confirms our position that the suits brought by attorneys general to recoup their states’ Medicaid costs are simply without legal or factual merit and should never have been filed,” said Thomas McKim, assistant general counsel of RJR’s R.J. Reynolds Tobacco unit.