In Reversal, U.S. to Seek Tobacco Suit Settlement

Justice Department lawyers, faced with dimming prospects for their massive suit against cigarette makers, have decided to seek a settlement that would eliminate a major legal threat to the embattled industry, officials disclosed Tuesday.

But tobacco industry executives said they aren’t interested in settling what they consider a meritless case. And anti-tobacco activists weren’t happy about the Justice Department’s new strategy either, accusing Atty. Gen. John Ashcroft of trying to negotiate his way out of a lawsuit he never liked in order to bail out the tobacco industry.

The decision is the latest sign of tobacco’s improving fortunes since the Bush administration took over from President Clinton, who launched the suit and bashed the industry at every turn.

Any settlement would be a fraction of the $246 billion that the states extracted from the tobacco industry in a landmark 1998 pact, observers said. But they added that if Ashcroft is serious about gaining concessions from the industry, a settlement could produce reforms of the way tobacco is regulated and marketed.

Ashcroft, acting on a staff recommendation, is appointing a team of Justice Department lawyers to begin negotiating with the tobacco industry. The team met for the first time Tuesday with other Justice Department attorneys who have been litigating the case, officials said.

The prospect of a settlement was driven by the government’s shaky showing in court since it brought its lawsuit in 1999, officials maintained. But critics pointed to the Bush administration’s refusal to provide enough money to successfully prosecute the case.

A federal judge last year threw out a key portion of the case, ruling that the government waited too long to try to recover hundreds of billions of dollars spent on health-care costs for ill smokers. However, U.S. District Judge Gladys Kessler refused to dismiss racketeering charges that could result in billions of dollars in damages.

Last week, the Justice Department asked Kessler to reconsider the ruling, and a decision on that request is expected by the end of summer.

In the meantime, the Justice Department believes it’s in its strongest possible position right now to negotiate a settlement, said an aide to Ashcroft, who asked not to be identified. If the judge decides not to reinstate the health-care portion of the lawsuit, that would give the government less leverage to reach a settlement, Justice Department lawyers said.

Justice officials denied claims by anti-tobacco activists that Ashcroft, who opposed tobacco litigation while a member of the U.S. Senate, is essentially abandoning a lawsuit that he inherited from former Atty. Gen. Janet Reno.

“If he’d thrown the case out, they might have a point. But he didn’t. We’re continuing our ongoing litigation. There’s been no change in that,” the aide said.

Barring a settlement, the case is expected to go to trial in 2003. Tobacco companies said Tuesday that they want to see the case tried in court.

“We’re not interested in settling this case for any amount of money,” said Tommy Payne, executive vice president of external relations for R.J. Reynolds Tobacco. “We consistently said this was a case without any legal merit. . . . We are preparing to defend the case.”

Likewise, executives at Philip Morris Cos.--the nation’s biggest cigarette maker--said that they had not yet been approached by anyone at the Justice Department about a settlement and that they “continue to believe the case is without merit.”

Anti-tobacco activists have charged for months that Ashcroft is seeking to undermine the landmark litigation. When asked about his plans for the lawsuit during his confirmation hearings, he was decidedly noncommittal, and he has requested only $1.8 million in the current budget proposal to fund the litigation team--far below the amount lawyers on the case say they need.

“First the political figures in the Department of Justice tried to kill the lawsuit by denying funding, and now there is every reason to believe that they are trying to strike a sweetheart deal with the industry,” said Matthew Myers, head of the Campaign for Tobacco-Free Kids in Washington.

Myers said in an interview he believes that the settlement discussions are “political payback” for the tobacco industry’s generous contributions to Republicans in last year’s elections.

The industry donated a total of $8.4 million in direct and indirect contributions in the 2000 elections, with most of it going to Republican candidates. George W. Bush’s presidential campaign was the single biggest recipient, with $90,125 in direct contributions.

Rep. Lloyd Doggett (D-Texas) charged that “settling this case highlights what Big Tobacco can buy with millions of dollars in campaign contributions. The tobacco industry has addicted this administration to contributions just as it has addicted people worldwide to its deadly product.”

Critics surmised that the Bush administration does not want to risk the political fallout of walking away from the lawsuit empty-handed and so instead is seeking to negotiate what may prove a marginal settlement.

Administration officials have “done everything they can to make sure the settlement is weak by leaking all over the place that they think the case is weak,” said Richard Daynard, head of the Tobacco Products Liability Project, which promotes lawsuits against the industry.

“They’ve essentially withdrawn their troops from the battlefield, told the enemy that they have a losing position and then sat down to negotiate a peace treaty. You can imagine what’s going to come out” of that, Daynard said.

Some analysts said a settlement conceivably could involve legislation granting limited authority to the Food and Drug Administration to regulate tobacco products. Philip Morris has been pushing a proposal to give the FDA power to require stronger warning labels and disclosure of cigarette ingredients and to set ground rules for how a new generation of supposedly safer cigarettes can be promoted.

Health groups have attacked the proposal, saying it stops far short of granting the FDA meaningful authority. But other cigarette makers are wary, fearing any marketing controls that would cement Philip Morris’ already dominant position. Moreover, winning congressional approval for such legislation as part of a settlement of the federal lawsuit would be problematic at best.

“Probably what Justice will try to get out of the industry is some sort of behavioral changes, rather than a big hefty payment like the states got,” said Mary Aronson, an independent legal and financial analyst in Washington.

The industry also might make major concessions to secure the biggest item on its wish list: a federal cap on punitive damages at a time when it has been hit with record awards in Florida and California. But such a cap would be extremely difficult to get through Congress, industry officials acknowledged.

Word of the settlement possibility caused little movement of tobacco stocks on Wall Street, where many have long anticipated that the lawsuit will be settled or dropped. Shares of Philip Morris lost 20 cents to close at $44.60, RJR slipped 42 cents to $52.33, and Loews Inc., parent of Lorillard Tobacco, declined 30 cents to $65.75.