Tobacco Settlement

To hear the assembled state attorneys general at the announcement of their agreement (which requires Congressional approval) with the tobacco industry on June 20, 1997, it was a one way surrender by the giant tobacco companies, Philip Morris, R.J. Reynolds and others. To hear from Wall Street, stocks of the tobacco companies have been rising fast in reaction to the deal.

Hmm. Who is right? Mike Moore, the lead state attorney general (Mississippi) led a number of spokespersons at the press conference at a downtown Washington hotel in listing what they extracted from the tobacco drug dealers.

They include: (1) banning youth marketing (cartoons, Joe Camel etc.), (2) restricting youth access (e.g. all vending machines would be banned), (3) under-age tobacco use must drop by 42 percent in five years and more later or modest penalties will be imposed on the industry; (4) formally recognizes Food and Drug Administration (FDA) regulatory authority over tobacco products,

new warning labels on cigarette and smokeless tobacco packs; disclosure of some industry documents; (7) restrictions on second-hand smoke in public places; and (8) industry funded anti­smoking campaigns.

Notice many of these “surrenders” have already occurred or about ready to occur. But there is more. The industry would be required to pay $368 billion over 25 years, most of which is deductible to the tobacco companies on their tax returns and with present discounted value amounts to what financial analysts have concluded to such a manageable payout as to allow for quite a profitable future. The money would go to private claimants, to states for smoking-related Medicaid costs, smoking cessation programs etc.

What did the industry get for such concessions? The answer was apparent in the mixed feelings expressed by one prominent trial attorney in the audience. Yes, there will be compensation and other impositions on the industry, but a legislative settlement of judicial cases that, among other risks, prevents class actions and consolidation of cases was bad and a worse precedent. Other industries could demand such a statutory closeout of the courts.

The state attorneys generals were less than candid when they asserted that the agreement offers no civil immunity to any company. Mistaken. They later admitted that the agreement bars future class actions and case consolidations. What that means is that it would be economically prohibitive for attorneys to take individual cases, one at a time. One trial lawyer told me if this agreement passes into law, he couldn’t economically take an individual case against a cigarette company if the client gave him one million dollars in expense money — “virtual immunity” for the tobacco industry said one industry analyst from Oppenheimer.

So, the tobacco industry concedes much that is already occurring, given the incriminating document disclosures and public momentum building against them. The companies receive de facto immunity from the only branch of government they cannot buy or rent — the judiciary. They have open season to persuade their many friends in Congress (including House and Senate leaders, Newt Gingrich and Trent Lott) to further weaken the agreement and hamstring the FDA which already has jurisdiction over tobacco. They have open season to obstruct and delay for years any proposed FDA regulations of nicotine and other additives and, failing that, take the FDA to court.

As for the money they would have to pay out. Let’s see, they save hundreds of millions in legal fees, billions in advertising budgets, can raise the price of cigarettes and deduct what they pay under the agreement at their federal income tax rate of 34%. Since cigarettes cost half or less than what they. sell for in Europe and Canada, the tobacco moguls have lots of leeway to shift the compensation package to their customers. In the meantime they secure their respective market shares in the U.S. (about 4% of the world’s population) and are free to hook hundreds of millions of youngsters in Asia, Africa, South America and Eastern Europe where the big future profits beckon.

Earlier this month, anti-tobacco industry leaders in foreign countries issued a statement imploring the state attorneys general to include some protections for overseas youth. Because our country has the strongest tort law in the world, the U.S. has the most invocable leverage over the industry. But this agreement does not require the tobacco companies to offer all concessions they make in our country to other countries around the globe. The companies were adamant on that point since they project more of their profits coming from abroad and their human casualties are growing fast.

After the negotiating parties release the full legal text of their agreement, it will go to Congress and the White House in its premature and seriously flawed state. Meanwhile forces in Congress are pressuring federalizing and weakening the very tort laws of the states without which no attorneys general, no members of Congress, no FDA nor White House would have been able to do anything.

But for the handful of trial lawyers who sued this industry years ago and started cracking open its internal files that fed the media and Washington officials, nothing would have happened. And these trial attorneys, including those representing the attorneys general were not invited to the June 20th press conference dais.