News: Analysis & Commentary: TOBACCO
THE ANTI-TOBACCO TROOPS SMELL BLOOD
The Liggett settlement is triggering a legal barrage
Big lawsuits tend to be ponderous, especially if they involve the tobacco industry. But antitobacco forces have been in a frenzy ever since Mar. 13, when Liggett Group Inc. became the first company to settle lawsuits alleging that cigarette makers concealed what they knew about the dangers of smoking. Subpoenas are out to former industry employees, new witnesses are surfacing, potential plaintiffs have stepped forward, and prosecutors are intensifying their criminal inquiries. "There's the smell of blood in the air," says John P. Coale, a lawyer representing the so-called Castano class action, a case brought on behalf of all addicted smokers that Liggett settled.
Cigarette makers, whose once united front against critics has been destroyed by Liggett's gambit, clearly don't see it that way. "The settlement does not represent any change of tactics or strategy on the part of the companies, nor do we plan to do anything but vigorously defend the cases," says Daniel W. Donahue, deputy general counsel at R.J. Reynolds Tobacco Co. Some go so far as to predict that the settlement will ultimately fail--after a mandatory court review. Brown & Williamson Tobacco Corp. says its legal strategy is unchanged by recent events, and Lorillard Tobacco Co. declines all comment.
CRIMINAL? Still, the pressure against the industry is intensifying. On Mar. 18, the Food & Drug Administration released affidavits from three former Philip Morris employees--Ian L. Uydess, Jerome K. Rivers, and William A. Farone--stating that Philip Morris deliberately manipulates nicotine levels in its cigarettes to assure smokers a nicotine jolt. That may contradict testimony by tobacco executives. Philip Morris and its brethren admit they sometimes adjust nicotine levels--but they say it's mnly to improve taste and maintain product quality. "On the assertions of monitoring nicotine, [the affidavits] are 100% absolutely completely false," says a Philip Morris spokesman.
What worries many analysts is the prospect of criminal liability for the industry and its executives. Critics have charged for years that tobacco companies misled the public and concealed what they knew about the risks associated with smoking. But no jury has ever sided with a plaintiff on such claims. "It's not as if we've been hiding the fact that nicotine is part of the smoking experience," says RJR's Donahue. "If we were, we've done a damn poor job of it."
A criminal indictment or conviction, however, could change jurors' minds. In Washington, the Justice Dept. is probing whether tobacco executives committed perjury in 1994, when they testified before Congress that they didn't believe nicotine was addictive. In New Orleans, in a case focusing on allegations that a low-level Brown & Williamson employee was involved in a plan to smuggle cigarettes into Canada, indictments could be filed "within weeks," says Eddie J. Jordan Jr., the U.S. Attorney in New Orleans. The company says that it and its senior executives are not targets of the probe. Nonetheless, says Gary Black, a tobacco analyst at Sanford C. Bernstein & Co., "if you see an indictment that charges a tobacco company with a criminal act, it poisons the jury, and it could poison judges."
Meanwhile, three other grand juries are also looking into Big Tobacco's practices. In Manhattan, the feds are investigating the companies for securities fraud. Additional federal inquiries are under way in Brooklyn, N.Y., and Alexandria, Va. And investigations are coming on all fronts. On Mar. 18, Uydess and Rivers were subpoenaed by the Mississippi Attorney General as part of that state's bid to recoup money spent on smoking-related illnesses. Uydess, a former scientist, and Rivers, a cigarette plant manager, will be deposed on Apr. 22 and 24 in Pascagoula.
The pair could well be joined by others. In the past week, roughly a dozen defectors from several companies have gotten in touch with various states and their lawyers to offer information, according to prosecutors and plaintiffs' lawyers. For instance, on Mar. 18, a former tobacco company salesman telephoned Trey Bobinger, an assistant attorney general in Mississippi, to reveal what he knew about how manufacturers control the nicotine levels in their products. "People are now voicing concerns about things about which they have personal knowledge," says Bobinger.
RENEGADE. Tobacco foes are hoping cash will prompt other defectors to speak out. Action on Smoking & Health, a consumer group in Washington, plans soon to offer a $100,000 award for information leading to the arrest of company executives who may have misled the public about the effects of smoking.
Several more states, including Washington and Texas, are now deciding whether to join the fray. "Every state attorney general is grappling with what to do about the issue," says James E. Tierney, a former attorney general in Maine who works with antitobacco lawyers and helps coordinate states' antitobacco activities. "I mean all 50."
Plaintiffs have renegade investor Bennett S. LeBow to thank for their current good fortune. As part of a bid to force a merger with RJR's tobacco unit, LeBow, CEO of Brooke Group, which owns Liggett, cut deals with class action lawyers and states on Mar. 13 that would also apply to any company that acquired Liggett. On Apr. 17, RJR shareholders vote on a LeBow slate of directors for RJR Nabisco Holdings Corp.
Some shareholders aren't willing to wait. On Mar. 19, New York Comptroller H. Carl McCall announced that the state's $75 billion pension fund would make no further investments in tobacco stocks. "We need to limit our exposure," he says. But others are more sanguine. Donald A. Yacktman, president of Yacktman Asset Management Co., which owns 700,000 RJR shares, is convinced LeBow's strategy will fail. And he believes lawyers and shareholders are overreacting. "This seems to be the normal manic-depressive reaction to an event," says Yacktman. Or maybe it's just a new kind of nicotine rush--one that could leave to- bacco executives in a pile of trouble.By Linda Himelstein in San Francisco, with David Greising in Atlanta, and Lori Bongiorno in New YorkReturn to top