Cigarettes Are Addictive, Cause Cancer, Marketed to Kids, Concedes Cigarette Maker Liggett as Part of Litigation Accord

TOBACCO March-April 1997

On March 20, cigarette maker, the Liggett Group Inc., admitted that cigarette smoking is addictive and causes cancer, and that tobacco companies have consciously marketed their products to children for decades. The admissions, the first by an American tobacco company, are central provisions of the company's litigation settlement with 22 states. In addition, Liggett agreed to pay 25% of its gross profit to the states every year for the next 25 years. The company also agreed to become the first cigarette maker to place a warning label on its packages stating that smoking is addictive, and will refrain from marketing to children. (John M. Broder, "Cigarette Maker Concedes Smoking Can Cause Cancer," New York Times, March 21, 1997, p. A1; John Schwartz and Saundra Torry, "Tobacco Firm Settles 22 State Suits," Washington Post, February 21, 1997, p. A1).

Liggett also agreed to turn over internal documents to the plaintiffs and to allow its employees to testify. Attorneys general believe this could providing damage evidence in their lawsuits against other tobacco companies. "This is a little like busting a street drug dealer to get at the Colombian drug cartel," said Minnesota Attorney General Hubert H. Humphrey III. The states claim tobacco companies have concealed their knowledge of tobacco's adverse health effects. They are seeking billions of dollars of compensation from tobacco companies for Medicaid costs incurred by the states in treating people for smoking-related illnesses. The first state trial begins on June 2 in Mississippi.

The four largest tobacco companies -- Philip Morris Companies, the Brown & Williamson Tobacco Corporation, the R.J. Reynolds Tobacco Company and the Lorillard Tobacco Company -- argue that the documents that Liggett agreed to turn over are protected by attorney-client privilege because they represent confidential legal discussions involving industry lawyers. Just hours before the press conference announcing the Liggett agreement, the four major tobacco companies won a temporary restraining order by North Carolina state judge William Freeman that barred Liggett from releasing the documents for at least 10 days.

However, on March 24, judges in Illinois, Texas and Mississippi endorsed the Liggett agreement and ordered that the internal documents be released under seal to the courts for judicial review. The judges also issued orders preventing other tobacco companies from suing Liggett for releasing the documents. Under the Liggett settlement, internal documents will be released to judges who will determine whether they can be used as evidence or are protected by lawyer-client privilege (Reuters, "Judges in 3 States Back Tobacco Settlement," New York Times, March 25, 1997, p. A19; Reuters, "Tobacco Companies Must Hand Over Documents," Washington Post, March 25, 1997, p. A6).

Liggett's acknowledgments strengthen efforts by the FDA to regulate the marketing and sale of cigarettes. The FDA contends that it has jurisdiction to regulate tobacco because cigarettes are addictive drug delivery devices and are marketed to children. The tobacco, advertising and other industries have filed a suit arguing that the FDA lacks the jurisdiction to regulate tobacco and that FDA's proposed regulations are a violation of the First Amendment. (Barry Meier, "Liggett Pact: Harbinger of Legal Battles to Come," New York Times, March 21, 1997, p. A18.)

In addition to the settlement with the 22 states, Liggett also won preliminary approval from a state court judge in Mobile, Alabama for a settlement of all current and future suits by smokers and their survivors, cities and counties, and insurers. Critics of the plan say that claimants stand to receive little from that settlement. Smokers, attorneys general and other plaintiffs would share 25% of Liggett's pretax income, which would be put into a settlement fund for the next 25 years. Based on Liggett's 1995 income, its payment that year would have been about $575,000. Given Liggett's weak financial position and declining market share, some plaintiff's lawyers argue that the Alabama proposal is the best they could expect. "The alternative to this deal is that Liggett goes bankrupt, and in that case the cooperation to the class [action] and the injunction relief would not be available," said Marc E. Kasowitz, a lawyer for Liggett (Barry Meier, "Liggett Proposal Would Limit Funds to Help Smokers," New York Times, March 24, 1997, p. A1).

Some legal experts, such as Susan Koniak, a law professor at Boston University, question the constitutionality of the Alabama ruling because it binds officials, insurers and individuals nationwide without offering an opt-out provision. In addition, participants in the settlement would not receive details about the allocation of settlement money until after the accord is approved.

"We are pleased to have reached these historic settlements that will protect Liggett from virtually all smoking-related claims. We believe that peaceful coexistence on reasonable terms makes far more sense for the tobacco industry than continuing denial of the legal and political reality of today's situation," said Bennett S. LeBow, chairman of Liggett's holding company, Brooke Group Ltd., of Miami. The settlement expands a deal negotiated by LeBow last year with 5 of the 22 states. That accord provided that Liggett pay Florida, Louisiana, Massachusetts, Mississippi and West Virginia $1 million immediately and $440,000 a year over the nest nine years, and 2.5% of annual pretax income over the next 25 years.