Cigarette Makers Denounce Suit as Official Hypocrisy : Law: Tobacco industry vows to fight effort to recover health care costs, says U.S. colluded with it for decades.

The government filed its massive lawsuit against the tobacco industry Wednesday to recover smoking-related health care costs and immediately stood accused of hypocrisy for filing suit after colluding with the industry for decades.

Cigarette makers denounced the suit and vowed never to settle out of court, as they did last year for a whopping $246 billion after they had been sued by the states on similar grounds.

They sought to shift attention from charges of their own misconduct to the government’s practice of supporting tobacco farming, assisting the sale of cigarettes overseas, promoting smoking in the armed services and reaping billions of dollars in cigarette taxes while doing little to discourage smoking.

Justice Department officials and some legal observers expressed doubt that the government’s “unclean hands” would pose a significant obstacle, however. The government can argue that proof of industry misconduct surfaced only recently with the disclosure of incriminating internal industry documents.

Nor was this the suit’s only potential weak point. Some of its legal underpinnings are largely untested, and the cigarette makers’ congressional supporters are likely to rally behind them.

For the government’s part, its most compelling argument is likely to be that new documents disgorged by the industry in the last two or three years have created a paper trail suggesting a pattern of fraud and deceit in its steadfast insistence that cigarettes were not harmful.

Tough Lobbies Confronted by Clinton

The suit represents an effort by President Clinton to leave a lasting mark on the government’s relationship with the tobacco business. In taking on the tobacco industry--and similarly the gun manufacturers--Clinton has confronted two of the toughest business lobbies, so politically potent that previous presidents have been afraid, if not unwilling, to touch them.

Although the Justice Department suit states no specific dollar amounts, it seeks many billions of dollars in damages, both to reimburse the government for the cost of treating smoking-related illnesses and to penalize the industry for what the government alleges was its 45-year campaign to lie about the risks and addictive nature of smoking. Justice officials estimate the cost to government health programs--Medicare, veterans’ programs and others--of treating people with smoking-related illnesses at $20 billion a year.

Industry and legal observers said that the suit, if successful, likely would result in a large increase in the price of cigarettes--perhaps as much as 55 cents a pack. That means smokers would underwrite the costs, as they are in the case of the tobacco companies’ settlements with the states.

Anti-smoking groups voiced hope that the prospect of huge damages would prompt the industry to make concessions concerning cigarette regulation.

Tobacco stocks dropped Wednesday, with Philip Morris Cos. down more than 3% and RJR Reynolds Tobacco Holdings off more than 4%.

The Justice Department also quietly announced that it had dropped its extensive, five-year criminal investigation of the cigarette companies. The inquiry had netted only one misdemeanor conviction of a small Oakland, Calif., company.

But in filing its civil lawsuit, it all but guaranteed further hostilities with the cigarette companies.

Complicating the picture is the fact that the next presidential election is less than 14 months away. Many observers believe that a Republican president would take the steam out of the lawsuit. Thus, it may be in the cigarette companies’ interest to drag out the suit as long as possible.

Seth Moskowitz, a spokesman for R.J. Reynolds Tobacco Co., the nation’s second-largest cigarette maker, said that the company does not “believe that the federal government has any basis for filing this suit. . . . We’re going to vigorously defend ourselves. . . . When the law is applied and the case is judged on its merits--rather than on rhetoric or sound bites--the courts will find that the Department of Justice simply doesn’t have a valid case.”

The 131-page complaint unveiled by Atty. Gen. Janet Reno charges the five largest cigarette companies and their public relations and research arms with engaging in a nearly half-century conspiracy, continuing to this day, to mislead, defraud and conceal from the American people and the federal government what the industry knew about the injurious effects of smoking on health and the addictive nature of cigarettes.

That part of the suit, brought under the Racketeer Influenced, Corrupt Organizations Act, recites a litany of secret meetings and agreements, starting with a now-famous meeting of top cigarette company executives at New York’s Plaza Hotel in 1953. It was then that the executives agreed to counter emerging scientific information about the health hazards of smoking with a sweeping public relations campaign whose alleged goal was to confuse the public.

Industry’s 1954 ‘Frank Statement’

The Plaza Hotel meeting led to publication of “A Frank Statement to Cigarette Smokers” in more than 400 newspapers around the country in 1954 in which the industry said: “We accept an interest in people’s health as a basic responsibility, paramount to every other consideration in our business.”

Instead, said Reno at Wednesday’s news conference, the cigarette companies “waged an intentional coordinated campaign of fraud and deceit. It has been a campaign designed to preserve their enormous profits whatever the cost--in human lives, human suffering and in medical resources.”

Among the many incidents cited in which the companies suppressed important health information from the public is a 1963 decision by Brown & Williamson Tobacco Co. to withhold information from the U.S. surgeon general about the addictive nature of nicotine. The 1964 Surgeon General’s Report, the first to warn consumers about the hazards of smoking, did not conclude that nicotine was addictive.

“The companies have conducted themselves without regard to the truth, without regard to the law and without regard to the health and life of the American people,” Reno said.

The Justice Department also cited two quite technical health care statutes: the Medicare Secondary Payer Act and the Medical Care Recovery Act.

Under each, the government is seeking to recover the amount it actually expended treating people with tobacco-related illnesses such as lung cancer, heart disease and emphysema. The government is attempting to recoup only that portion of the cost of care that can be attributed to the cigarette manufacturers’ deceptive behavior.

Thus the government will seek reimbursement for only part of the money it has spent taking care of people with such illnesses. Exactly how much will be determined by the evidence gathered during the lawsuit, according to Acting U.S. Assistant Atty. Gen. David Ogden.

In addition to monetary damages, the government is seeking fundamental changes in the industry’s behavior, notably its advertising. It is also demanding that the industry pay for a nationwide anti-smoking campaign.

“The important thing is to ask the court to order public education, to attempt to counter the effect of the tobacco industry’s campaign,” Ogden said.

“This is not about banning a product. It’s about stopping fraud. This is about stopping illegal conduct, and it’s about getting compensation for it,” Ogden said.

Sen. Edward M. Kennedy (D-Mass.), one of the industry’s staunchest foes on Capitol Hill, said that the government’s action “is clearly the right thing to do. . . . This lawsuit is the strongest action which the administration can take to end the predatory and deceptive conduct of the tobacco industry.”

However, tobacco lawyers said that they intend to fight rather than settle.

They said that they will try to force the government to try the damage claims of each patient individually rather than aggregating them in a single lawsuit. Courts have taken varying stances on whether the government can lump together such claims. They allowed the states to aggregate the cases of Medicaid recipients who were treated for smoking-related illnesses, but in some private class-action cases courts have ruled the other way.

Tobacco officials also cited a recent analysis by the Congressional Research Service, which found that smokers do not impose net costs on the government. The study found that, while smokers who die of smoking-related ailments increase medical costs at that time, future medical costs are reduced because the smokers do not live to suffer other illnesses.

In addition, the analysis said, smokers pay billions of dollars in excise taxes and, because of higher mortality rates, collect less in Social Security pensions.

Issue of ‘Unclean Hands’

Particularly complex is whether the government has “unclean hands” in its effort to blame the tobacco industry for smokers’ addictions. The question, experts said, is whether the government would have behaved differently had it known everything the cigarette industry knew.

“The federal government has spent tens of millions of dollars throughout the years warning the citizens of the United States about the health risks of smoking,” said Greg Little, associate general counsel for Philip Morris. “That’s why we believe it is absurd for the federal government to stand up today and announce that somehow it was unaware of the health risk of smoking and has no responsibility for the tobacco policy of the last 50 years.”

But New York University law professor Stephen Gillers said, “No one is innocent in this story.” He contended that the government “has to be careful to acknowledge some responsibility--at least moral responsibility”--while also arguing that the companies’ behavior was so reprehensible that they must be made to pay.

“This lawsuit--as other lawsuits that we’ve seen in the last several years--[is] based on all the new information that we never knew about before that has come from the tobacco industry’s own internal files,” said Rep. Henry A. Waxman (D-Los Angeles). Congressional supporters of the tobacco industry probably will try to make it difficult for the government to pursue its claims by refusing to authorize any additional money to prosecute the massive case. Lawmakers already have slapped down the Justice Department’s request for an additional $20 million for fiscal 2000 to help finance the lawsuit.

Mississippi Atty. Gen. Mike Moore, who repeatedly has urged Reno to sue the industry, said, “I believe the government has a good case, but I think it’s going to be a very hard and long fight.”

Named in the suit, which was filed in federal district court in Washington, are Philip Morris, R.J. Reynolds, Brown & Williamson, Lorillard Tobacco Co. and the Liggett Group, as well as the Council for Tobacco Research and the Tobacco Institute, the industry’s research and public relations arms.

* Rubin reported from Washington and Levin and Weinstein from Los Angeles.