Cornered (47 page)

There were also some bright moments. Almost from the beginning, the companies had accepted all FDA controls, and they had agreed to controls on advertising. But they still insisted that the FDA should not
regulate
nicotine. Such a move would mean that the industry could be regulated out of existence if a future FDA decided to reduce nicotine content below the level at which smokers found satisfaction. Myers had proposed the ingenious “look-back” provision that would penalize the industry if it did not reduce smoking by young people—the next generation of smokers—by a progressive percentage each year. The fines were appealing, but not a substitute for FDA control.

The industry was now prepared to up its offer to $300 billion over twenty-five years. Gauthier recalled, “Russ [Herman] came back and said they had started at $250 billion, but I told him to go back and ask for more,” said Gauthier. “I know $250 billion is more than I had ever imagined but if one day I found out that we had agreed to a $100 billion less than the companies had calculated they could spend it would make me sick, so I told Russ to keep pushing until they're about to walk away.”

The money would go to the states for Medicaid expenses, to fund countermarketing measures and advertisements through the Department of Health and Human Services and the FDA, and to fund smoking “cessation” programs among the Castano class action. It would also provide money for damage claims from individuals.

The basic method of distribution of the money had been agreed upon earlier at a small meeting of industry lawyers and Scruggs, Moore, and two other attorneys general (Grant Woods and Richard Blumenthal), and Gauthier, who was the only representative from Castano. It was held in Pascagoula so that Gauthier could get there and back in a day from New Orleans because he was undergoing chemotherapy treatment for colon cancer. Settling the state cases was relatively simple; each was asking for a given amount to cover Medicaid expenses. The Castano class action covering all addicted smokers included tens of millions of smokers—at least 400,000 of whom die each year, according to government statistics. Gauthier recalled, “When we started calculating what it would take to compensate for the deaths alone, not to mention the injuries if we won, there wasn't enough money in the world. Just to cover the deaths at, say, $30,000 each would come to more than $12 billion a year. Everybody said, ‘Jesus.'”

Woods and Blumenthal did not want any class-action settlements that would just hand over money to putative class members who had not litigated their claims. It was agreed that Castano class members would receive what they called “common benefits”—money to put them into smoking-cessation programs—which was Gauthier's original idea for the Castano suit. But Gauthier wasn't going to let the industry totally off the hook and demanded that future individual cases ought to be allowed. From there the group developed the concept of an annual fund, to come out of the $300 billion, to pay for individual lawsuits.

The industry's immunity was the most hotly disputed issue. Having conceded that individual claims would continue, they wanted no more class actions, or even “aggregation,” a cluster of a small number of suits. They wanted a cap of $250,000 compensation on individual suits—and an end to punitive or exemplary damages. They insisted that all claims should be limited to fraud only—the most difficult case to prove. They wanted their old defense of assumption of risk preserved, especially since they were ready to admit in labels on cigarette packs that smoking
does
cause cancer and that nicotine
is
addictive. They wanted liability limited to manufacturers only, a demand that hit at the heart of the trial lawyers' strategy of pursuing all parties that had contributed, however distantly, to the injury caused, including retail distributors, insurance companies, tobacco-stock analysts, lawyers who had concealed evidence, and scientists who had skewed scientific reports. Specifically, the industry wanted to make certain the immunity extended to their food divisions and their many law firms.

Essentially, the industry wanted future cases to be too unattractive to bring into court for smokers and their lawyers. Neither the Castano group nor the AGs would agree to the terms. To the Castano trial lawyers it smelled of tort reform—something that threatened their entire livelihood. To the AGs it sounded like permanent political baggage, with the possibility that they would be branded forever as the ones who let a rogue industry off the hook. Scruggs, the top negotiator for the plaintiffs, and Moore, the leader of the AGs, said they would walk from the negotiations if there were caps on individual suits.

Later, in a private meeting with the tobacco lawyers, the Castano group suggested a compromise: raise the $250,000 cap to $1 million per case and they would agree to the industry's demand for no punitive damages. As the industry was providing a “fund” to pay for lawsuits (it would turn out to be $5 billion), it was a reasonable incentive to bring cases, and a ban on punitive damages would prevent one plaintiff from taking the entire purse, or a substantial part of it. As Gauthier said later, “I didn't want one guy hitting the whole fund for the entire $5 billion.”

Moore asked for time to discuss the issue in a conference call with the other AGs. The next day, he reported that they were prepared to accept that no more than $1 million would be paid on an award in any one year, but, if the award was bigger it would be paid out of the next year's fund, at a million dollars a time. The industry agreed. The AGs also would accept a ban on class actions, but wanted the possibility of “aggregating” a small number of cases—up to fifteen. However, the ban on punitive damages, the kind of awards that often make the difference between a plaintiff's lawyer breaking even or making a profit, was a deal breaker. As elected officials, the AGs did not want to be party to curbing the rights of the tort lawyers. They saw it as unacceptable political baggage. There was “zero room to move,” Moore reported.

At that point, Scruggs, who normally seemed so much under control, snapped. It wasn't that he was against lawyers suing big companies; he basically thought the legal system had been so unrewarding to smokers in the past that it was better to deal with the problem through a compensation board—like miners with black lung disease. “In that case the victims would get their money instead of having to hire a lawyer and roll the dice in court,” he would say later. But if there was to be future litigation against the industry, he supported Gauthier; a ban on punitives would result in a more equitable distribution of the pot. The restrictions would insure the ability of all future victims to recover and not just the first in line.

Too few of the AGs could agree. Moore had insisted that they approve any deal with a 90 percent majority. The issue dragged on beyond Scruggs's patience. He shut himself in his hotel room and wouldn't come out. “He was in a rage,” said Coale. “I tried to talk to him, saying that the world was looking at us now and they wanted the deal—we knew that from the polls—but he refused to come out of his room.” “There are too many cooks in the kitchen,” said Scruggs and he flew home. The talks were suspended for four days.

*   *   *

T
HE LOW POINT
of the negotiations came, according to Scruggs, when the talks resumed in New York on May 12. This time it was Moore's turn to quit the talks. The industry wanted a two-tier system of liability: one for past misconduct and another for future claims. It was a complicated arrangement in which a person suing in the future would have to conform to certain restrictions. “We had fine-tuned it for weeks and then we had to tell the companies we couldn't sell it to the AGs; it's too complicated, we can't explain it,” said Scruggs. Coale said, “I didn't know whether the tobacco lawyers could withstand the heat from their clients after the about-face.” Moore left town, saying the public-health gains were now in jeopardy. But the talks resumed a few days later. The AGs dropped their demand on keeping punitive damages after an inventive compromise came from Bruce Lindsey at the White House. He suggested raising the $300 billion total payment by a “punitive sum” of a further $50 billion, which could be considered as a one-time punishment. It gave the AGs the political out they needed.

That settled, the last issue was the lawyers' fees. This matter had been deliberately left to the end because a struggle was inevitable—and none of the negotiators wanted the media to focus on it. The Castano group pushed for an equal division between themselves and the lawyers representing the states. The states felt that they had the stronger cases, with the prospect of bigger awards, and so they should command a larger percentage. Florida state attorneys insisted that their case was the most viable—because of the state law—and that fact should be recognized. Castano lawyers balked, insisting on the fifty-fifty split. If that was unacceptable they threatened to negotiate directly with the tobacco companies.

Some lawyers representing the states were retained on a fixed percentage, ranging from 13 to 25 percent of whatever the state was awarded. Others, like Scruggs in Mississippi, had deferred to whatever the judge in the case would allow. For Motley and Scruggs, who represented several states, the stakes were high. They stood to make fortunes.

The lawyers could only agree on one thing: keep the fees out of the public eye, or that would be all the media would talk about. Already, some journalists were speculating on 3 percent or a $3 billion total payout, or $360 million a year. The plan was to negotiate fees separately with the industry so that it was not part of the legislative package in Congress.

The industry wanted a cap on fees, but Castano and the AGs protested and that was quickly dropped. At a private session in New York on May 20, the Castano group met with Scruggs, who proposed a total pot of $6 to $8 billion with the creation of a fees “czar” to divide up the money. When the agreement was signed on June 20, the matter had still not been settled.

*   *   *

T
HROUGHOUT
, the negotiators were under a time constraint. The talks had to end before June 20 or Mike Moore would have to go to trial in Mississippi. The state case opened on July 7. By the beginning of June, however, the tobacco companies themselves suddenly appeared to be in disarray. Martin Broughton, the chief executive of BAT in London, was apparently upset that the U.S. companies had not insisted on total immunity for the future and he was worried they might be pressured into allowing punitive damages. BAT's problem was that Brown & Williamson looked especially vulnerable if punitives were allowed because of the Merrell Williams papers and Jeffrey Wigand's testimony. For Broughton to participate at this late stage was somewhat odd given that BAT had been claiming in court that it was so far removed from its wholly owned Kentucky subsidiary, B&W, as to have no day-to-day control over operations. Clearly, this was an emergency; one that required a stern and steady hand. In a seven-hour meeting at Philip Morris's Park Avenue headquarters in New York, the fifty-year-old Broughton, an accountant by training, voiced his strong views about America's “naive and parochial” attitude toward smoking and made his pitch for a tougher stance.

But the momentum was now too great; both sides wanted to bring the deal to a close. The negotiations were finally concluded in Washington after a hectic week in which the two sides shuttled back and forth between the Park Hyatt and the ANA hotels, working into the night and getting up before dawn. Last minute changes were overseen by the two referees sent by the tobacco industry, former Texas governor Ann Richards, in her silver beehive hairdo, and the courtly Phil Carlton, in pink striped shirt, electric-blue tie, and a handkerchief in his top pocket. Whenever called upon, they poured Southern charm over the troubled negotiators. As the participants emerged from their meetings ever more rumpled, it was clear the talks would continue right down to the June 20 deadline set by Mike Moore as the outside date when he had to leave the negotiations to prepare himself for his state's trial.

At 3:30
P.M
. on Friday, June 20, a small group of AGs, led by Moore, filed into a ballroom at the ANA and announced the completion of “the most historic public health achievement in history.” The emotional Mr. Moore said that every day he had worked on the proposal he had been thinking of what it would mean to his ten-year-old son, Kyle, and his generation of potential nicotine addicts. Moore was hailed as an American hero by his attorney general colleagues, several of whom flanked him on the podium. They included Dennis Vacco of New York, Bob Butterworth of Florida, Christine Gregoire of Washington state, Richard Blumenthal of Connecticut, Grant Woods of Arizona, and Jeffrey Modisett of Indiana.

Butterworth had the sound bite of the day. “The Marlboro Man will be riding into the sunset on Joe Camel,” he said. The Massachusetts AG, Scott Harshbarger, suggested that “only the major discovery of vaccines could rival what this proposal promises to accomplish.”

There was a feeling of unreality, as there had been throughout the talks. After four decades of denial about smoking and disease, would this industry really agree to take down their glamorous advertisements and stamp all future products with the label “Smoking Can Kill You,” as the proposals demanded? And would child smoking be reduced by 60 percent in ten years? And would the industry pay out a staggering $368 billion dollars to the states and to victims of tobacco? Perhaps Mike Moore and the tobacco industry CEOs would one day share the Nobel Prize for Health.

Connecticut's Richard Blumenthal brought the event closer to earth when he said, “We've left more undone than we accomplished.… We've shackled and caged a beast, but we haven't conquered it.”

Steve Parrish of Philip Morris followed the AGs with a short statement in which he described the agreement as a “bitter pill.” Accomplished as he was at presenting the company line, even Parrish stumbled. There were aspects of the agreement, he said, “with which we disagree,” but then, quickly realizing the absurdity of such language, he corrected himself: “with which we do not necessarily agree.” The industry looked forward to a “new era of tolerance with regard to tobacco,” he said curtly and promptly left the podium.