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WASHINGTON-New questions about details of the proposed $368.5 billion tobacco settlement underscore how far the controversial proposal is from being a done deal.
As state attorneys general defended the proposed settlement to members of the Senate Judiciary Committee last week, several senators indicated they thought the proposed settlement relieved tobacco companies of liability at far too low a price.
In particular, the senators said any global settlement should not allow the tobacco companies to deduct the costs of punitive damages from their federal income taxes, as the Internal Revenue Code permits. One senator also questioned what impact the settlement might have on the victims of asbestos-related diseases who also happened to smoke, as they attempted to recover for their injuries.
And, as has been the case before, critics questioned whether Congress has the right to approve a settlement that would pre-empt any class-action suit brought against tobacco companies in state courts.
Meanwhile, House Speaker Newt Gingrich, R-Ga., is expressing serious doubts about the proposed settlement.
A spokesman for the speaker said Rep. Gingrich is particularly concerned over the amount of legal fees stemming from the settlement that will be awarded to private plaintiffs' attorneys involved in actions against the tobacco companies and about whether proposed restrictions on cigarette advertising violate the First Amendment.
In addition, Clinton administration officials continued to examine the deal last week. President Clinton, who also must approve the proposed settlement, has publicly criticized certain aspects of the proposal, notably restrictions on the ability of the Food and Drug Administration to regulate tobacco, as unacceptable (BI, July 14).
As Judiciary Chairman Orrin Hatch, R-Utah, noted as he opened the hearing: "The questions this settlement immediately raises are very complicated. We must determine whether this is a good deal and a deal that will withstand constitutional muster in the long run."
It was immediately clear that many senators think the proposed deal has to undergo quite a few changes before they will find it acceptable.
Under the terms of the proposal, unveiled last month, tobacco companies would submit to a series of new restrictions on their activities and pay about $368 billion to 40 states and Puerto Rico over the next 25 years (BI, June 23). Sixty billion dollars of that is earmarked as punitive damages.
In return, the states would drop all suits seeking to recover Medicaid costs involving tobacco-related illnesses from cigarette makers, and future state court class-action suits would be banned, as would punitive damage awards against tobacco companies for past misdeeds. Individual smokers would retain their right to sue.
Four of the state attorneys general and plaintiffs attorneys appearing before the committee defended the proposal as the best possible deal available. Gale Norton, the Republican attorney general of Colorado, said the settlement is better than any of three possible scenarios if current tobacco litigation continues.
Under the first scenario, tobacco companies would continue to win suits and the states would recover nothing. In the second, the companies would lose, go bankrupt and new companies, including foreign ones, would enter the market with no obligation to pay for past misdeeds. Under the third scenario Ms. Norton cited, litigation would continue, with the companies winning some cases and losing others, which would waste a "tremendous" amount of time and money in litigation, she said.
Richard Blumenthal, the Democratic attorney general of Connecticut, said that while he did not like all portions of the settlement he helped negotiate, the concessions the attorneys general made were necessary to achieve "broader public health goals."
In his written statement, which he did not deliver in its entirety because witnesses were limited to five minutes for oral remarks, Mr. Blumenthal addressed the issue of punitive damages by writing, "the purpose of punitive damages is to punish for misbehavior. This payment punishes and deters, not with the hope that juries and judges one day will punish an industry they so far have not punished, but with certainty-$60 billion certainty." Mr. Blumenthal further noted that some states do not permit punitive damages in product liability cases, anyway.
A third speaker in favor of the settlement emphasized that the amount of money the tobacco companies would pay is far more than is likely to be won in litigation. In addition, the settlement "achieves the whole thing right now, not years from now," said Stanley Chesley, a senior partner in the Cincinnati law firm Waite, Schneider, Bayless & Chesley and one of the most prominent plaintiffs attorneys involved in smoking-related litigation.
Another trial attorney involved in the negotiations-Richard Scruggs, senior partner in the Pascagoula, Miss., law firm Scruggs, Millette, Lawson, Bozeman & Dent-also praised the deal as one that requires tobacco companies to pay a high price for their actions.
When asked by Sen. Mike DeWine, R-Ohio, what would happen if there were no global settlement, Mr. Chesley replied "I see litigation that would last 30 to 40 years."
But many members of the committee seemed more interested in Minnesota Attorney General Hubert H. Humphrey III's criticism of the deal, which the Democrat called a "Trojan camel." Mr. Humphrey was particularly critical of a provision in the proposal that would keep certain internal tobacco company documents under seal.
As an example of the type of information that might be buried forever, Mr. Humphrey read from a 1958 secret report by British scientists who had been sent by British-American Tobacco Co. to the United States to study any possible links between smoking and cancer. Their report noted that while there was "some doubt" as to what proportion of lung cancer cases could be attributed to tobacco, "scientific opinion in the U.S.A. does not now seriously doubt that the statistical correlation is real and reflects a cause and effect relationship."
This secret report was made six years before the first surgeon general's report linking smoking to health problems.
Mr. Humphrey urged the committee to demand more information before proceeding on a bill that would implement the proposal. Sen. Hatch agreed that he'd like to see more such documents as the committee continues to draft implementation legislation, which is expected to be introduced after Labor Day.
As they questioned the witnesses, several senators brought up the matter of punitive damages. Sen. Edward M. Kennedy, D-Mass., said that allowing the tobacco companies to deduct the cost of the punitive damage portion of the settlement meant the taxpayers ultimately would end up paying for it.
Sens. Diane Feinstein, D-Calif., and Russ Feingold, D-Wis., both added their concerns over the tax treatment of the punitive damages.
Sen. Richard Durbin, D-Ill., added a new wrinkle to the debate by asking how the settlement would affect smokers who also happened to suffer from asbestos-related illnesses and who are seeking compensation in the courts. If the settlement goes through, "you have literally shut courtroom doors" in the faces of such claimants, he said. "I don't believe your treatment of asbestos claims is fair," he said.
Mr. Scruggs responded that the purpose of the settlement is not to limit the rights of asbestos victims but rather to trade "illusory rights for real gains."
Sen. Robert Torricelli, D-N.J., said Mr. Humphrey's comments "further compromised" any enthusiasm he had for the settlement. Like several of his colleagues, Sen. Torricelli expressed concern over the right of the federal government to restrain state tort actions.
Later, two constitutional experts sparred over the right of Congress to interfere in state tort matters.
Laurence H. Tribe, professor of constitutional law at Harvard Law School in Cambridge, Mass., said the Constitution's Commerce Clause, among other things, gives Congress the right to regulate tobacco, including tobacco litigation. Only proposed restrictions on tobacco advertising would raise serious constitutional questions, according to Mr. Tribe's testimony.
Robert A. Levy, a senior fellow in constitutional studies at the Cato Institute, a libertarian think tank, disagreed wholeheartedly, calling the proposal "shameful." He said the proposal unlawfully limits the rights of future claimants and allows Congress to intercede in product liability cases that are state rather than federal matters.
When asked by Sen. Jeff Sessions, R-Ala., if he feared that the tobacco settlement precedent could be used against other industries, Mr. Levy replied that it could indeed.
In another tobacco-related development last week, trial began in Miami in Broin vs. the Philip Morris Cos. et al., the first class-action suit regarding second-hand smoking to actually make it to trial. The $5 billion suit class-action suit brought by airline flight attendants contends that tobacco companies deceived the public about the hazards of second-hand cigarette smoke. The lead plaintiff, a non-smoker, has been diagnosed with lung cancer, which her attorneys contend was caused by "passive smoking," or breathing smoke-filled air while serving patrons on smoking flights.