THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Thursday, March 14, 1996 TAG: 9603140309
SECTION: FRONT PAGE: A1 EDITION: FINAL
SOURCE: From wire reports
LENGTH: Long : 135 lines
In a historic reversal, one of the nation's major tobacco companies broke ranks Wednesday and agreed to settle a huge class-action lawsuit, exposing cracks in the powerful industry alliance that has battled anti-smoking cases for decades.
The Liggett Group, the smallest of the nation's five major cigarette companies, and lawyers representing millions of smokers agreed to drop the company from the lawsuit in return for payments to a national quit-smoking campaign and Liggett's promise to withdraw from the fight against new Food and Drug Administration tobacco regulations.
Liggett agreed to donate 5 percent of its pre-tax profits for the next 25 years to fund the study of nicotine addiction and programs to help consumers quit smoking. The annual maximum would be $50 million a year.
In addition to breaking the $45 billion tobacco industry's solid ranks opposing both lawsuits and FDA regulation, Liggett and the plaintiffs' lawyers were scrambling Wednesday to broaden the settlement to another battleground: lawsuits brought by five states to recover billions of dollars of Medicaid spending to treat illnesses blamed on tobacco.
``The industry's previously monolithic policy of denial, evasion, obfuscation and stonewalling has only served to enrich lawyers,'' said Mississippi Attorney General Mike Moore, a pivotal figure in the negotiations with the states. ``This could be the first big crack in the tobacco industry's 50-year-old dam.''
The stakes also could be much higher because Liggett's parent, the Brooke Group Ltd., is locked in a battle for control of RJR Nabisco Holdings Inc., the owner of RJR Tobacco, the nation's second-largest tobacco company.
The terms of the settlement would extend to RJR if Brooke is successful and the two tobacco companies are merged as Brooke Chairman Bennett LeBow plans.
If that happened, the settlement would cover nearly 30 percent of the market and bring more than a billion dollars into programs to curb smoking over the next 25 years. It would also decimate the industry consensus that the only viable option for tobacco companies is to fight nearly every damage claim and challenge all regulations.
``It would no longer be a question of whether the companies will be liable, but what's the deal?'' said Richard Daynard, executive director of the Tobacco Products Liability Project, which monitors tobacco-related litigation from Northeastern University in Boston.
The industry received yet another dose of bad news Wednesday in the Florida legislature. Despite an intensive lobbying campaign to overturn a law that made it easier for the state to establish liability in a lawsuit to recoup Medicaid costs from tobacco companies, the industry lost when the state Senate failed to muster the votes to override a governor's veto.
Liggett's larger rivals responded to the settlement by saying the agreement was riddled with loopholes, starting with a provision voiding the deal if any of the other defendants win the class action lawsuit.
They also pointed that Liggett had admitted no wrongdoing and attached another string to the deal: If it makes no profit in a given year, no payment will be due.
They also said Liggett's proposed payments to those suing the industry were so modest that it was unlikely to be approved in the court overseeing the class action. Even if the settlement is approved, they said, it would have no impact on most other such litigation.
``The settlement addresses only a limited piece of the tobacco landscape and is so full of holes that it won't affect our approach to litigation or regulation,'' said Steven Parrish, a spokesman for the Philip Morris Companies, the largest tobacco company, which has major production facilities in Richmond.
The settlement's framers concede that Liggett by itself, with just 2 percent of the market, is a minuscule wedge. The money it proposes paying, based on a small percent of annual profits, represents three hours' profit for the industry as a whole.
The settlement would have to be much richer to satisfy many anti-tobacco activists and lawyers.
``People are being asked to give up their right to sue for cancer in exchange for a lousy discount at a Smoke Enders course,'' said Stan Rosenblatt, a lawyer who represents plaintiffs in two separate lawsuits against tobacco companies. ``My goal is to destroy the industry and thereby save millions of lives.''
Those who negotiated the settlement say that the abandonment of such a scorched-earth policy was the key to the deal, which they argue will have more benefits for current smokers and society.
One key question was how much the settlement might strengthen the FDA effort to assume a role regulating the industry. The industry argues that the FDA has been repeatedly told by Congress that it has no authority over tobacco.
But the agency, with strong support from President Clinton, is nonetheless asserting jurisdiction in an effort to lay down sweeping restrictions based on what it claims is new evidence that cigarettes are actually ``nicotine-delivery devices'' that are addicting millions of children annually. It is proposing sweeping new regulations on how tobacco is sold, distributed and advertised.
Liggett said it will no longer oppose the FDA's current proposals, but it did not go the extra step and agree that the agency had jurisdiction over the industry. MEMO: This story was compiled from reports by The New York Times and The
Washington Post.
HISTORIC SETTLEMENT
The company: Liggett Group Inc., based in Durham, N.C., is the
fifth-largest U.S. cigarette maker, holding about 2.4 percent of the
market. Its brand names include L&M, Chesterfield, Lark, Eve and
Pyramid, a discount brand.
The lawsuit: The settlement came in a lawsuit against the nation's
leading tobacco companies alleging that they hooked smokers while
concealing tobacco's addictive qualities. Last year, a federal judge in
the New Orleans case opened the door for millions of smokers to sue the
companies in a class action. The lawsuit remains alive against the other
companies: American Brands Inc., Brown & Williamson Tobacco Co.,
Lorillard Tobacco Co., Philip Morris Inc. and R.J. Reynolds Tobacco Co.
The settlement:
Liggett agreed to donate 5 percent of its pre-tax profits for the
next 25 years to fund the study of nicotine addiction and programs to
help consumers quit smoking. The annual maximum would be $50 million a
year, or $1.25 billion over the entire period.
But it is unlikely that Liggett's earnings would ever require the
maximum payments. Liggett's pretax income amounted to $11 million in
1994, meaning its payment under the settlement would have been $550,000.
Liggett will accept proposed federal regulation of tobacco
advertising, promotion and sales. Liggett won't use cartoon characters,
it won't post billboards within 1,000 feet of schools and will stop
giving away clothes and some other items as promotional merchandise.
Liggett is also trying to settle with five states that sued to
recover the cost of treating smoking-related illnesses under Medicaid.
One news report said the company will pay Florida, Massachusetts,
Mississippi and West Virginia $4 million over 10 years. A settlement
with Minnesota would still need to be resolved.
Sources: Associated Press, Washington Post, Wall Street Journal by CNB