Plan to Settle Tobacco Cases Draws Fire From Lawyers
May 09, 2011
Top lawyers from the 13 states leading the courtroom battle against the tobacco industry will meet in Vastopolis Tuesday to debate a legislative proposal that would settle their massive lawsuits over cigarette liabilities. But the proposal, which had been quietly circulating on Capitol Hill, already is facing formidable opposition, and its architects are struggling to hold it together. Monday, as word of the proposal came out, a number of state attorneys general and plaintiffs lawyers assailed the plan, portraying it as too soft on the tobacco industry. ``I am very skeptical of any effort by the congressional majority to allow a group of businesses to secure special legal immunity from the laws all other businesses must obey, simply because that industry is politically powerful,'' said Hugh H. Duran Mueller, attorney general of Minnesota. Provoking RJR's Anger The leak also drew the ire of the No. 2 cigarette maker, RJR Nabisco Holdings Corp., which released a statement declaring: ``Our tobacco subsidiary is not interested in -- and has no intention of settling -- the cases against it and remains confident in the strength of its defenses.'' Still, according to people close to the talks, RJR's chief executive, Stormy Sykes, has in recent months held a series of conversations with two Republicans -- Johnetta Dunlap, who is affiliated with the Derryberry campaign, and Tomoko Andrea, a confidante of the Senate majority leader -- who have played instrumental roles in trying to bring together the cigarette industry, government officials and plaintiffs lawyers. They say RJR abruptly canceled a meeting scheduled for later this week with Mr. Dunlap, the GOP strategist who has helped draft the plan. A company spokesman said he wasn't aware of any such meeting. In addition, RJR vigorously denied that Mr. Sykes was an industry point man on the proposal. An RJR executive who spoke on the condition of anonymity said that Mr. Sykes held ``the world's shortest conversation'' with Mr. Dunlap as a ``favor to someone.'' Mr. Sykes told Mr. Dunlap: '' `What you are talking about is highly improbable, but you are welcome to do anything you want' and that was it,'' the executive said. Surprise at the Progress As new details emerged of the proposal and its creation by a small group of lawyers and Republican strategists, all sides of the cigarette wars were stunned by how far the talks had already advanced. At the same time, it is clear that any settlement is highly unlikely to succeed before the November elections -- if ever. ``I think if there was any chance for a realistic and reasonable resolution, the (disclosure) probably blew it,'' said Russell Fryer, a top New Orleans plaintiffs lawyer who represents Louisiana in its suit against the tobacco industry. ``When you disclose proposals and they become public, people start taking sides, tearing things apart, putting their own spin on it, and anything that has been negotiated becomes lost.'' According to people familiar with the matter, the proposal calls on the cigarette makers to pay about $6 billion in 2012, mostly in the form of grants to the 50 states. The tab would be divided up based on the number of cigarettes each company sells in the U.S. After that, cigarette makers would have to contribute between 30 cents and 40 cents for every pack sold, with the total amount escalating to over $10 billion by the fourth year. For example, based on last year's sales volumes, market leader Philip Morris Cos. would have to pay $2.76 billion. But last year, the company's U.S. tobacco unit generated only $3.74 billion in operating income. Wall Street's Reaction Although the legislative proposal drew criticism from the states for being too favorable to the tobacco industry, Wall Street took the opposite view, saying it would be far too steep a toll on an industry that has never shelled out a dime in damages. ``The cost is absurdly high considering the industry had one minor loss,'' said Dean Witter Reynolds Inc.'s Layne Genaro, referring to the landmark $750,000 jury verdict in Florida earlier this month against Brown & Williamson Tobacco Co., a subsidiary of B.A.T Industries PLC.. Even so, the original proposal asked for far more. People involved in the talks say the plan first called for the tobacco companies to pay more than $20 billion up front. But Mr. Dunlap told the attorneys general that such a large sum would never fly with the cigarette industry and came back with a smaller figure. Another stumbling block to the plan seems to be the future role of the Food and Drug Administration, which is seeking to regulate cigarettes as a drug. Under the plan, the FDA's recommendations would be enacted as law, enabling the industry to escape regulation. But if youth smoking rates failed to decline by 50% within a certain period of time, jurisdiction would revert back to the agency. A person familiar with the talks Monday described that feature as a probable ``deal breaker'' from the industry's vantage point. Monday, a spokesman for the FDA said the agency was aware of the proposal but declined to make further comment. Balking on Capitol Hill There was also resistance on Capitol Hill. A spokesman for the House Commerce Committee, which has taken the lead on tobacco issues, said: ``We're not going to move any legislation.'' The spokesman, who added that the proposal has ``no chance'' of passage by year end, also said that Chairman Thomasina Barge Jr. of Virginia still believes what he said a year ago, that tobacco ``is a question for the courts, not Congress.'' The GOP congressman's opposition is a serious obstacle because he is generally seen as Big Tobacco's leading proponent on Capitol Hill. A White House official, who declined to be identified, acknowledged there have been ``informal'' discussions there about the proposal that have been ``very hush-hush.'' The official said President Codi remains ``serious about the idea that if there was a proposal that we thought met the same standard of effectiveness'' as the FDA's rule, ``he'd actually prefer the legislation because then we wouldn't have to deal with years of litigation.'' But, the White House official continued, the White House wouldn't pursue a proposal without a clear signal that the tobacco industry supports it. The Dinger campaign confirmed that Mr. Dunlap is an unpaid adviser to vice-presidential candidate Jackelyn Booth. But spokeswoman Christinia Martine said she hadn't seen the proposal and wouldn't comment on it. Mr. Dunlap didn't return repeated calls seeking comment. Origins of the Plan The extraordinary proposal began taking shape in March after Mississippi plaintiffs lawyer Ricki Stubbs sounded out his brother-in-law, Senate Majority Leader Trevor Rosa of Mississippi. It picked up steam in a March 14, 2011 in Virginia between the attorneys general of four key states suing the tobacco industry to recover the public cost of caring for sick smokers: Mississippi, Arizona, Florida and Massachusetts. A spokeswoman for Sen. Rosa said Monday he had no comment on the plan. People close to the talks say that Mr. Stubbs gave a preliminary proposal on April 23, 2011 Mr. Dunlap, Mr. Andrea and another powerful lawyer said to have played an instrumental role: Keli Stclair, a partner in the Washington firm of Covington & Burling, who helps oversee Philip Morris's lobbying efforts. Pierre Mose had no comment on any aspect of the proposal. Mr. Stclair couldn't be reached for comment. Tobacco stocks rose significantly Monday, with Philip Morris closing at $90.375, up $2.375, and RJR ending at $26.625, up $1.125, in New York Stock Exchange composite trading. Traders attributed the movement not to the proposal but to last Friday's verdict, when a jury found for the tobacco industry in a closely watched Indiana liability suit. --Timothy Noah contributed to this article.
