Already a Bloomberg.com user?
Sign in with the same account.
News: Analysis & Commentary: INDUSTRIES
FULL-FLAVORED, UNFILTERED STATEHOUSE SHENANIGANS
Near midnight on May 5, two dozen lobbyists--the Tobacco Team--gazed at the TV monitor in the rotunda of the Florida state legislature. They watched in silence as votes were tallied on a proposed repeal of a law that had paved the way for the state's suit to recover $4.4 billion in smoking-related Medicaid costs from the cigarette industry. As soon as the landslide vote in favor of repeal was announced, the lobbyists erupted in high fives and back-slapping. "It was a big night for us," Philip Morris Cos. lobbyist John French says with a grin. "I felt like I finally got the monkey off my back."
The monkey really never had a chance. Ever since Governor Lawton Chiles slipped the cigarette amendment into an otherwise innocuous Medicaid bill in the waning hours of the 1994 session, an incensed tobacco industry had been on the warpath seeking its repeal. The industry relied on its traditional strengths: money, power, and influence. The combination worked once again--proof that tobacco makers are far from vanquished by negative public opinion and antismoking legislation.
PALM BEACH STORY. Indeed, a year after state-initiated Medicaid suits such as Florida's started appearing, the tobacco industry is fighting back with a vengeance, building on its decades of highly effective statehouse lobbying and courtroom maneuvering. And while it could take years to resolve the state cases now pending (table), the industry has again demonstrated its durability.
Until the legislative appeal, Florida's suit, filed in a Palm Beach court last January, had appeared the strongest. Chiles had crafted an amendment designed specifically to deny the cigarette industry several of its tried-and-true legal defenses. Manufacturers would be prevented from arguing that consumers willingly assumed the risk of smoking; the state, meanwhile, would be able to establish a statistical connection, rather than a direct causal link, between smoking and health problems.
Ultimately, though, the innovative legal strategy was beaten by politics and big-money. The tobacco camp hired the cream of the Tallahassee lobbying crop--including Jim Krog, the governor's former campaign manager. Signing up new troops from across Florida and as far away as Washington, a contingent of more than 50 strong descended on lawmakers and editorial boards.
By conservative estimates, the industry spent no less than $750,000 on the repeal campaign; it gave $121,500 in campaign funds to the lawmakers in the Republican-dominated legislature, according to Florida Legislative Reporters Inc., which tracks contributions. Meanwhile, it enlisted as an ally Associated Industries of Florida Inc., a 6,000-member trade group that filed suit to challenge the state law's constitutionality. That suit still is pending.
BAD OMEN. In West Virginia, meanwhile, a state judge on May 3 threw out 8 of Attorney General Darrell V. McGraw Jr.'s 10 counts against tobacco makers. McGraw had sued in September, 1994, seeking about $1 billion in Medicaid costs. He says he will appeal the judge's decision. But the ruling is a bad omen for officials in other states, whose cases rest on the same legal rationale: that as innocent third parties, states have unfairly been stuck with the cost of treating tobacco-related illnesses of poor and indigent patients.
The innocent-victim argument may be the weakest part of the cases, argue tobacco attorneys. They expect to use the legal theory of subrogation, which holds that third parties can collect damages only if the victim could have collected on his own. So far, "no [victim] has been able to do that," asserts Daniel W. Donahue, deputy general counsel for R.J. Reynolds Tobacco Co. A Mississippi judge rejected such reasoning in a February decision. Still, the Florida law, which essentially outlawed the subrogation defense, was critical, concedes W. Dexter Douglass, Chiles' general counsel. Without the law, "it's not nearly as certain a lawsuit."
The fight, clearly, is far from over. Governor Chiles has vowed to veto the Florida repeal. Polls indicate two-thirds of Floridians favor his law, and he'll work to lure enough Democratic legislators to avoid an override. But Team Tobacco has staying power. Public opinion is against it. Yet money, and legal acumen, often talk louder than voters.
Major pending state cases against the tobacco industry
CALIFORNIA State legislator Richard Katz introduced a Florida-style Medicaid reimbursement bill on Feb. 23. Legislation was tabled in mid-April.
MINNESOTA The state and Blue Cross/Blue Shield filed suit last August seeking recovery of tobacco-related health expenses paid by Medicaid and Blue Cross. The industry wants to disqualify Blue Cross as a plaintiff.
MISSISSIPPI The state, seeking reimbursement of up to $100 million annually in health-care expenses, has won two key procedural victories in court and survived the industry's motions to dismiss.
WEST VIRGINIA In early May, tobacco attorneys persuaded a judge to drop 8 of 10 counts brought by the state, leaving only antitrust and consumer protection claims intact. The state is contemplating appeal.
DATA: BUSINESS WEEKBy Maria Mallory in Tallahassee