Big Tobacco's Big Problem
Calling for tougher settlement this week, Clinton showed no sympathy for the industry. Should it fight or deal?
Never before has Big Tobacco had its back so firmly to the wall.
The $45 billion-a-year industry faces a flood of courtroom battles as both the political tide and public opinion are shifting against it.
Analysts say the prospect for tough national antismoking legislation has never been better.
"They face 39 state cases and a large number of individual suits that haven't been filed yet. The pressure on them just continues to build," says Richard Daynard, director of the Tobacco Products Liability Project at Northeastern University in Boston. "They can't afford not to deal. However high the price goes, ... they have to pay it."
Tobacco executives and shareholders had hoped that a proposed $368 billion global settlement with state attorneys general might inject some certainty into the increasingly litigious job of making and selling cigarettes.
But there is anything but certainty after President Clinton, Tuesday, outlined his view of a national tobacco plan. He spoke of the need for drastic reductions in teen smoking and empowering the Food and Drug Administration (FDA) to regulate all aspects of cigarettes. He mentioned helping tobacco farmers but not cigarette manufacturers.
That sounds bad for an industry desperately seeking government protection. Class-action lawsuits and unlimited punitive damage awards could bankrupt it.
"The industry would like some certainty and predictability vis-a-vis stock prices, and all the lawsuits hanging over them have made that certainty elusive," says Kathryn Kahler Vose of the Campaign For Tobacco-Free Kids in Washington.
Current cases include:
* A Texas trial later this month. The attorney general charges cigarettemakers violated racketeering, fraud, and conspiracy laws.
* A class-action lawsuit in Miami. Thousands of flight attendants say they became sick because of secondhand smoke. A verdict could come in October.
* October trials in Philadelphia and Jacksonville. Individual smokers claim companies knowingly sold defective products that caused illness.
* A January trial in Minnesota. Lawyers for the state want internal industry documents - some long shielded by attorney-client privilege.
* Critical litigation, expected to reach the US Supreme Court, in a federal appeals court in Richmond, Va. over FDA authority to regulate cigarettes and cigarette advertising.
Earlier this year, the tobacco industry settled the first two of the state suits, agreeing to pay $3 billion to Mississippi and more than $11 billion to Florida. But industry lawyers say that from now on, all cases will go to trial.
The settlements came when the industry was courting attorneys general to preserve their proposed global settlement and its protections against future class actions.
Now, with the settlement apparently eclipsed in Washington, Big Tobacco may have no option but to fight.
"The industry has had a two-pronged attack all along," says Kathy Scheg of the Washington advocacy group Action on Smoking and Health. "What this does is remove the illusion that things are going to be settled."
She says the coming trials will rally public opinion even further against tobacco. Its supporters in Congress will find it increasingly difficult to resist tough provisions.
But the industry is far from helpless. Tobacco lawyers rank among the highest-paid and most-talented in the country. They have lost only once at trial: an individual smoker case tried last year in Jacksonville.
Tim Swanson, an analyst at A.G. Edwards in St. Louis, says it is too early to count the tobacco industry out. "If the tobacco companies were to win in Texas and have the FDA authority overruled by the appellate court, this could be a benefit for them going into negotiations" in Congress.
But many analysts question tobacco's prospects for winning hundreds, even thousands, of suits. "Uncertainty and the fear of bankruptcy is what propelled the tobacco companies into negotiating, and I think it continues," says Mr. Daynard.
Woody Wilner, the only lawyer with a US trial victory against Big Tobacco, says the industry must realize that if it chooses to fight, the fight will be endless.
Mr. Wilner says he has 4,000 clients with tobacco-related illnesses and has filed "several hundred" cases. "They will win some of those cases, but they won't win them all," he says. "When they finally understand that we are not going away, ... maybe they will see the light."