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Congress balked at a deal. Now tobacco firms face suits by states and individuals armed with strong new evidence.
The Senate's sweeping antismoking bill may be dead - but the tobacco industry remains in deep legal trouble.
Big tobacco's foes will now shift their focus back to the nation's courts, where the number and range of lawsuits against the $50 billion industry has grown larger than ever.
A flood of damaging internal documents released via recent lawsuit settlements will only make tobacco firms' position worse. The result could well be a many-front guerrilla war - just the thing the industry has long sought to avoid.
Antitobacco "momentum continues, but it continues back in the original forum where they began to play this out, in the state and federal courts," says Richard Daynard, a professor at the Northeastern University Law School and chairman of the Tobacco Products Liability Project.
"The evidence just gets better and better for people suing the industry," says Daynard.
One year ago, tobacco companies seemed assured of a different future. A comprehensive settlement hammered out between the industry and 40 state attorneys general would have forever altered the nation's public-health prospects, as well as a $50 billion segment of the US economy.
The deal might have ended a fight between government and tobacco first joined in 1965, when Washington began requiring warning labels on cigarette packs.
In the settlement, tobacco firms agreed to pay the states $368 billion over 25 years, as compensation for state public health costs related to smoking-caused illnesses.
In return, the industry would have received protection from the many court cases lined up against them.
But its provisions required passage of national legislation - and both the states and tobacco firms underestimated the amount to which Washington lawmakers would alter its terms.
Washington foes of tobacco felt that the industry was weakening. They saw it as a desperate effort to protect itself from court cases, so they began toughening the terms of settlement.
Thus, in the bill introduced by Sen. John McCain (R) of Arizona, the $368 billion price of settlement was raised to $516 billion. The industry was given no cap on its legal liability.
As the bill progressed, the mood of tobacco company officials turned from acquiescence to anger. They announced their active opposition.
When tobacco firms pulled out, what had formerly been a voluntary payment suddenly became a tax on cigarettes, set at $1.10 a pack. Then firms poured $40 million into an ad campaign depicting the McCain bill as typical Washington tax-and-spend legislation. All sorts of special interests were scrambling to get their hands on the cash raised by the tobacco tax, they said.
"We agreed to sit down to a negotiated process ... [because] we wanted to look at a way to gain some protection from lawsuits," says John Singleton, director of corporate communications at RJ Reynolds Tobacco. "Once it got into Congress, and the Senate, we essentially lost a lot of the legal protections."
Tobacco officials say they would still agree to a deal that harked back to their original settlement of a year ago.
But "I don't think that's likely, frankly," says Mr. Singleton.
Thus the apparent death of the McCain bill is not necessarily a happy day for tobacco firms. They still face an enormous minefield of ongoing litigation.
While cigarettemakers have settled four of the biggest cases - state suits filed by Mississippi, Florida, Texas, and Minnesota - they have yet to go to court on legal challenges from 36 other states. All are suing to recover public money spent to care for residents with illnesses connected to smoking.
Several of the biggest of these will go to trial in the next year, including Washington State in September, Massachusetts in February, and California next March.
Some 15 class-action suits filed on behalf of allegedly addicted smokers will also now bedevil the industry, as well as dozens of suits filed by state Blue Cross and Blue Shield health plans, and hundreds filed by individual plaintiffs.
Big tobacco may well win some of these suits, using its long-time argument that smoking is a personal choice, and thus its effects are a matter of personal responsibility. But the firms will lose some as well, say experts - and in general, the legal tide may be running against the industry.
Hundreds of pages of documents released as part of tobacco's settlement with Minnesota have provided damaging evidence that firms may have long known more than they have admitted about the effects of nicotine, as well as the effects of their marketing on children.
In addition, well-publicized state settlements may send the message to sitting juries that tobacco is vulnerable.
"There are still states suing them, and there are hundreds of plaintiffs' cases. If they start losing they are going to be back in front of Congress begging for a deal," says Elizabeth Whelan, president of the American Council on Science and Health, a New York consumer-education organization.
The demise of the Senate bill also makes a coming court decision more important. The US Fourth Circuit Court of Appeals is considering whether the federal Food and Drug Administration has the power to regulate nicotine in tobacco products.
Legislation granting the FDA such power, as the McCain bill would have, could have made this ruling irrelevant. Now the courts, not Congress, will decide this potentially crucial issue.