Big Tobacco Settles Minnesota Lawsuit for $6.6 Billion

TIMES LEGAL AFFAIRS WRITER

Hours before a jury was to begin deliberations, the tobacco industry agreed Friday to pay $6.6 billion to settle a massive lawsuit filed against it by the state of Minnesota and Blue Cross and Blue Shield of Minnesota.

The industry also agreed to a landmark nationwide ban on the much-criticized practice of making payments to movie, television and video producers to feature smoking by actors in their productions.

The cigarette makers also agreed to disband the Council for Tobacco Research, the industry arm that tobacco foes contend played a key role in suppressing the hazards of smoking and propagating disinformation over the last 40 years.

The eleventh-hour accord marked the fourth time in the last year that the once legally impregnable industry settled a suit lodged against it by a state attorney general. It brought the total value of the agreements to $36 billion. The Minnesota case is the only one to go to trial.

The state of Minnesota will get $6.17 billion under the agreement and Blue Cross and Blue Shield will receive $469 million. In addition, the nation's cigarette companies will pay out $440 million in fees to the private lawyers who represented the state and the insurance firm in the suit.

Friday's settlement is the third-largest court settlement in U.S. history--topped only by the $11.3 billion the industry agreed to pay Florida and the $15.3 billion it surrendered to settle Texas' suit.

The huge pot also exceeds by $1.9 billion what Minnesota would have gotten out of a proposed $368.5-billion national settlement announced June 20. And it is three times larger than the $1.77 billion in damages Minnesota and Blue Cross and Blue Shield were seeking compensation for treating sick smokers.

Industry analysts said the tobacco industry settled for the higher figure out of fear that the jury might come down with a huge punitive damages award.

But at a triumphant news conference, Minnesota Atty. Gen. Hubert H. Humphrey III stressed the public health benefits of the agreement and the fact that the case had forced the disclosure of millions of industry documents that will help lawyers in other suits and public researchers and "laid the foundation" for possible criminal action against the industry by the Justice Department.

"Today, the tobacco industry has surrendered, and they have surrendered on our terms--groundbreaking terms that will expose the full truth to the public, recover record amounts for taxpayers, impose tough reforms on the industry and, most important, protect future generations of children."

Andy Czajkowski, the chief executive of Blue Cross and Blue Shield, who shared the platform with Humphrey, hailed the agreement as "a major breakthrough in our fight against the leading public health epidemic of our day and age."

Differing Views of Tobacco Firms

The nation's two leading cigarette companies issued brief but strikingly different statements about the settlement.

Philip Morris Cos., the industry's largest firm, said in a measured announcement read by spokesman Scott Williams outside the federal courthouse here that the settlement underscores the limitations of state-by-state litigation as opposed to a national resolution of the tobacco controversy.

"Another state has settled, but there is no resolution for dozens of others and no certainty about the future outcome of cases in other states," three more of which are set to go to trial later this year, Williams said. The statement also lamented the demise of the proposed national tobacco accord that would have settled this and other suits around the country in return for the industry's acceptance of significant restrictions on its marketing activities.

R.J. Reynolds Tobacco Co., the country's second-largest cigarette maker, released an angry statement complaining about the presiding judge: "We agreed to the settlement because we concluded that it would be extremely difficult to reach a fair outcome, based on what we believe are a series of incorrect rulings by the court favoring the state, which in essence placed a loaded gun to our head."

Throughout the long case, filed in August 1994, industry lawyers have complained that Ramsey County District Judge Kenneth J. Fitzpatrick had been unfair to their clients. But appellate courts upheld all 18 decisions that the industry appealed, including two that went to the U.S. Supreme Court.

Settlement Curbs Selling, Marketing

The settlement clearly represents another bitter pill for the beleaguered $50-billion-a-year tobacco industry. Under the agreement, the cigarette companies are permanently barred in a court decree from:

* Distributing in Minnesota promotional items--such as hats, shirts, or backpacks--that bear the brand name or logo of any domestic brand of tobacco product.

* Misrepresentating the health consequences of using any tobacco products, including any tobacco additives.

* Conspiring to suppress research into smoking and health or into the marketing or development of new products, such as a safer cigarette.

* Directly or indirectly targeting children in Minnesota in the advertising, promotion or marketing of cigarettes.

"Our trial has convicted this industry of marketing to kids," Humphrey said. "And this injunction puts them on parole. If we find new evidence that they are marketing their deadly product to kids, we're going back to court to hold them in contempt and impose fines and penalties."

The settlement calls for Minnesota to get its huge bounty over a 25-year period, with the first payment of $10 million in June, $240 million in September and $102 million in December, and varying payments in following years.

It is far from clear how the state will choose to use the money, and there are likely to be political battles on that issue. But the settlement calls for the creation of a $102-million fund to provide assistance to any addicted Minnesota smoker who wants to quit and a $100-million national smoking research fund.

Firms Agree to New Lobbying Rules

In addition to the court-imposed injunctions, the industry agreed to the ban on payments to movie and television producers, the dissolution of the Council for Tobacco Research, and:

* New lobbying disclosure rules in Minnesota.

* Remove all tobacco billboards in Minnesota within six months and eliminate ads on buses, taxis and bus shelters.

* Not oppose certain new laws designed to reduce youth tobacco use and indoor air laws that could affect the industry.

* Maintain at industry expense for 10 years a depository of millions of tobacco documents in Minneapolis and another in Britain.

* Release internal indexes to millions of previously secret industry documents, providing a road map that will make it much easier for lawyers in other cases and health researchers to locate key material.

Perhaps more than anything else, those documents may be the lasting legacy of this case. Minnesota's attorneys already forced the industry to cough up 33 million internal papers, far more than were obtained in any prior case. Former Surgeon General C. Everett Koop has praised that effort as "one of the most significant public health achievements of the second half of the 20th century."

On Friday, both Humphrey and Michael Ciresi, the state's lead trial lawyer, heaped praise on attorney Roberta Walburn, the outside counsel who headed the effort to unearth the industry's secret papers and became known here as "The Document Diva."

Humphrey said the public health gains the state achieved in the settlement exceeded anything a jury could have awarded. A six-man, six-woman panel was set to start deliberations Friday after Ciresi was to have given his closing argument--an oration he did not deliver because of the settlement.

Several jurors, who had intently listened to 40 witnesses and the presentation of about 3,000 documents voiced frustration at not being able to render a verdict.

"I was very disappointed," said juror Dorothy Hallen, a 44-year-old cosmetologist who quit smoking nine years ago. "We put in a lot of time. We didn't get closure."

The dramatic announcement came after three weeks of intense negotiations that had broken down several times in recent days.

As recently as Thursday morning, Czajkowski of Blue Cross and Blue Shield told reporters he viewed the prospects of a settlement as slim. But the talks resumed just a few hours later.

Sources close to the talks said that negotiators for the two sides, led by Meyer Koplow for the industry and Assistant Atty. Gen. Lee Sheehy for Humphrey, worked into early Friday morning at the law offices of Robins, Kaplan, Miller & Ciresi before buttoning up the deal.

At 9 a.m., when Ciresi was set to start his closing argument, Fitzpatrick recessed the court until 1:30 p.m. while he reviewed the agreement worked out overnight. He announced the agreement Friday afternoon.

Minnesota alleged that the industry engaged in a 40-year conspiracy to suppress the health hazards of smoking, manipulated the nicotine content of cigarettes to keep smokers hooked and marketed their products to teenagers in an effort to garner new smokers to replace the 400,000 Americans who die yearly as a consequence of smoking. The plaintiffs said that the industry's conduct resulted in vast increases in health care costs and that the industry had to compensate the state and Blue Cross and Blue Shield for money they spent treating sick smokers.

Minnesota's suit also alleged that the industry violated state consumer protection and antitrust laws.

Medicaid Recoupment Suits Called Vital

When the case was filed in 1994, three months after Mississippi became the first state to sue Big Tobacco, the industry had yet to pay out a dime in damages in four decades of litigation. Industry attorneys and press agents dismissed the state Medicaid recoupment suits as legally unfounded and predicted that they would be dispensed with easily.

But after the Mississippi and Minnesota suits survived initial challenges, more and more states joined the fray. Because of the possibility of immense damages, the state Medicaid recoupment suits became a key factor driving the industry's desire to reach a national litigation settlement.

For the last two years, the Minnesota suit had been viewed as the biggest threat to the industry because of the state's strong consumer protection and antitrust laws and its success in obtaining secret papers that revealed the industry's dark side. The industry employed 30 law firms and spent well over $100 million defending the suit.

Humphrey was particularly praiseworthy of the decision of his private counsel to accept considerably less in fees than they were entitled to under a contract they signed with the state in 1994. That pact called for Ciresi's firm to get 25% of anything the state recovered. But they agreed to reduce their chunk to 7.1%, although the deal calls for them to get it all in three years, increasing the sum's value.

Humphrey, who is running for governor, has been blasted by Republicans for creating a potential windfall for the lawyers. On Friday, he stressed that "this hometown firm took immense risk and advanced tens of millions of dollars on behalf of taxpayers--to take on an industry no one had ever defeated."

He added: "Our team dug out more secret tobacco documents than anyone in the world and got us to where we stand today . . . they made their money the old fashioned way--they earned it!"

THE SETTLEMENTS

The settlements, over carrying periods of time, in state suits against the tobacco industry.

In billions

Texas: $15.3

Florida: $11.0

Minnesota: $6.6

Mississippi: $3.4

Total: $36.3

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