TOBACCO FUND IDEA RAISES MANY QUESTIONS

WASHINGTON-Any settlement reached between the tobacco industry and a group of state attorneys general seeking reimbursement for tobacco-related Medicaid costs faces numerous hurdles before it could come into being.

The difficulty of agreeing upon a settlement and then making it work became evident within hours of revelations that Philip Morris Cos. and RJR Nabisco Holding Corp. had begun meeting with representatives of the attorneys general. The idea of creating some sort of no-fault fund to compensate states and individuals for their illnesses while closing the door to future litigation has caused particular concern among plaintiffs' attorneys, consumer groups and some congressmen.

Some observers are also concerned that the $300 billion that tobacco companies are supposedly willing to provide over a quarter-century to compensate victims will fall far short of what is needed. Liggett Group Inc., the nation's smallest cigarette manufacturer, announced a settlement with attorneys general last month and agreed to pay a portion of pretax profits to a compensation fund. But because Liggett has not been profitable, the company is not expected to make any contributions (BI, March 31).

Both Philip Morris and RJR Nabisco referred all questions to an outside Washington public relations practitioner, who did not return calls.

The attorneys general "are united in pursuit of four overriding objectives," according to a statement released by Mississippi Attorney General Mike Moore last week. Mississippi is one of 22 states suing the tobacco industry. The four goals are to protect children by "stopping the marketing of tobacco to kids and reducing youth access to tobacco"; provide full public disclosure of the health impact of tobacco; "to protect consumers by reforming the business practices of tobacco companies"; and to provide relief to states and individuals for tobacco-related health costs.

"Be assured that any 'definitive' reports about an agreement are nothing more than speculation," the statement said.

The first of the four points is the most important and has to be dealt with before any of the other points can be addressed, said Trey Bobinger, Mississippi's assistant attorney general.

"Our primary concern is the public health piece, notably the protection of children from tobacco," Mr. Bobinger said.

"That issue must first be satisfactorily resolved before we can really get into the specifics of money, immunity and other related issues," he said.

A spokesman for Florida Attorney General Robert A. Butterworth said: "Our attorney general and other AGs have met with tobacco industry representatives over the past few weeks. At this point nothing has been resolved. Here in Florida, our focus is still on getting ready for trial, which is scheduled to begin Aug. 4."

The state of Florida is suing tobacco companies on its own in state court to recover Medicaid costs, the spokesman said.

Talk of absolving the tobacco companies from future liability in return for contributing to a compensation fund drew swift and unfavorable reaction from some quarters of Capitol Hill. A group of Democratic senators, led by Frank Lautenberg of New Jersey, sent a letter to the president, calling for "very stringent conditions" to be imposed in any settlement. These included paying "just and fair compensation" to those suffering from tobacco-related ailments and to extend the federal Food and Drug Administration's regulatory power to tobacco.

"We urge you to maintain a healthy skepticism about any proposed settlement and to adhere to a clear set of requirements before the administration assents to any such agreement. To waive claims of future liability against this industry is a very serious undertaking," wrote the senators.

The co-chairmen of the bipartisan Congressional Task Force on Tobacco and Health, Reps. James Hansen, R-Utah, and Martin Meehan, D-Mass., also wrote to President Clinton. They said that "we strongly oppose the granting of any blanket liability protection for the tobacco industry."

But observers agree that talk of a settlement is premature.

Plaintiffs attorney Stanley M. Chesley said it is incorrect to characterize the current goings-on as a proposal. The parties are in ongoing negotiations and have not agreed on a single proposal, said Mr. Chesley, a partner with Waite, Schneider, Bayless & Chesley in Cincinnati. Mr. Chesley has been involved in numerous high-profile mass-tort cases and is involved in the current negotiations among the tobacco companies, the attorneys general and representatives for the public.

There are two key issues, Mr. Chesley said. The first is children smoking. "We want to make sure that that's totally abandoned." He emphasized that this is the major concern the tobacco opponents want addressed. The second issue is money. He wouldn't comment on just how much is at stake.

One difference between these negotiations and other mass-tort settlements is "a question of magnitude," because this could involve 41 million smokers. Another difference is that this is a legislative approach, he said.

"Other than that, it's similar" to other mass torts, Mr. Chesley said.

This strategy is better than previous mass-tort approaches because "if we do it legislatively, we would hope there would be a much shorter period of time" before victims get compensated, he said.

Asked how these negotiations will affect other tobacco lawsuits, Mr. Chesley said, "That's what we're working through."

Norwood Wilner, a partner with Spohrer, Wilner, Maxwell, Maciejewski & Stanford, a plaintiffs firm in Jacksonville, Fla., agrees there is no specific proposal. In fact, he thinks it is all a publicity stunt by the tobacco companies to shore up lagging stock values before their annual meetings.

The tobacco industry wants news of a potential settlement to raise its stock value, said Mr. Wilner, who won a case against Brown & Williamson in August 1996 and who represents a plaintiff suing RJR in Jacksonville.

The timing of this publicity is "just too coincidental," referring to RJR's annual meeting being held last week. "The industry uses the press to fool with its stock value," he said.

"Everyone's got their own negotiations" rather than a single encompassing negotiation, he said. "It's a bunch of people saying a bunch of things, and they're not even in the same room," he said.

Also, these negotiations are "not a new thing," he said. Mr. Wilner said it has been going on about a year and a half.

Mr. Wilner said the negotiations would not impact other tobacco litigation "at all unless Congress passes some law that restricts citizens' access to the courts.

"No one can negotiate the rights of a party to sue except that party, unless there's an act of Congress."

However, individual state legislatures voted to establish their respective workers comp systems beginning in 1911, and those laws were subsequently upheld by the U.S. Supreme Court. The employer-funded workers compensation system is designed to be a no-fault administrative system that gives workers prompt, limited treatment and pay in return for shielding employers from unlimited and unpredictable damages awards.

Mr. Wilner added that he thinks "it is possible for the industry to settle its claims; it's the morally correct thing to do."

The industry needs a mechanism to set settlement amounts and how they would vary, he said. In any case, he stressed that he is not easing up in his efforts to bring lawsuits against tobacco companies on behalf of clients.

Professor Paul Rothstein, a constitutional law expert at the Georgetown University Law Center in Washington, points out that "there is some precedent" for creating a compensation pool for those harmed by tobacco.

The workers compensation system, Mr. Rothstein said, is the precedent for "providing a substitute compensation system for people that would be simple for them to use, would have fewer things to prove and cover more people."

Other examples, he said, are the federal vaccine fund that compensates people injured after receiving certain mandatory vaccines and certain states' victim injury compensation plans.

But the federal "black lung" program, which was designed to deal with pneumoconiosis, "has certainly not been a model program," said Robin R. Obetz, an attorney with Vorys, Sater, Seymour & Pease in Columbus, Ohio, who represents employers.

The Supreme Court's decision in an unrelated case could have an impact on whether the compensation fund idea goes anywhere, said a California legal scholar.

"If the Supreme Court decides the Amchem case in favor of the settlement, this whole thing becomes much more feasible," according to Associate Professor Katherine C. Sheehan at the Southwestern University School of Law in Los Angeles.

In Amchem Products Inc. et al. vs. George Windsor et al., the Supreme Court has been asked to review an appeals court ruling overturning a settlement of asbestos class-action claims (BI, March 31; Feb. 24). The high court will address the legality of binding future claimants to a global settlement.

Even though Ms. Sheehan personally does not expect the high court to support the Amchem settlement, she still thinks a tobacco settlement has "got a shot" at becoming reality.

Many people are hostile to the tort system, and if the tobacco companies present the proposal as an industry-funded way to streamline the compensation system, Congress could pass it, she said.

"I'm skeptical at best" about any proposed smokers' fund, Mr. Obetz said. "No-fault systems have tremendous transaction costs," pointed out Mr. Obetz.

He predicted that a smokers fund could be tapped for "every lung condition that exists unless there were tight compensability requirements."

"What about the situation of a claimant who has an occupational lung disease and is a smoker?" he asked.

Mr. Obetz said that the concept needs to be thought through by a lot of potentially interested parties, including employers, insurers, attorneys and medical experts.

"We will be very concerned about the spread of the workers compensation approach to other diseases," Mr. Obetz said.

"We support the notion that employers' concerns ought to be considered," said Ruth Brannon, a director of the Washington Business Group on Health. "We plan to investigate what employers will get out of this."

However, the WBGH is concerned about the unintended consequences of any federal legislation.

"Smoking is generally not considered a workplace injury, because it is difficult to prove causation," she added.

The question of how much money the pool would require to meet claimants' needs also concerns observers.

"In theory, it's possible to structure a compensation system that would be fair to injured individuals but outside the litigation system. However, the $300 billion mentioned in news reports seems very much inadequate to cover the damage that the tobacco industry has caused and continues to cause," said Allison Zieve, an attorney with the Public Citizen Litigation Group in Washington.

"The numbers that are being floated don't seem to be high enough," said Ms. Sheehan. After the $300 billion figure was announced, the tobacco companies' stock prices went up, she noted.

"If they say $300 billion now, how much will it be in the future?" asked Mr. Obetz.

Meg Fletcher and Deborah Shal-owitz Cowans contributed to this report.