Tobacco lawsuit didn’t accomplish all it could have
But it did lead to progress in the fight against smoking in Texas
TEXARKANA — Twenty years ago, then-Texas Attorney General Dan Morales filed a federal lawsuit accusing the tobacco industry of racketeering and fraud. He said the case would make Big Tobacco change how it did business, force the cigarette companies to make less dangerous products and stop the industry from marketing to teenagers.
The lawsuit, he contended, would require the tobacco companies to fork over billions and billions of dollars, which would be used to reimburse the state of Texas for smoking-related Medic- aid costs and fund anti-smoking programs.
“This was the most important health-related litigation in history,” says former Mississippi Attorney General Mike Moore. “Cigarette smoking was the No. 1 cause of death in the entire world.” He adds, “There will never be a case this big or this impor- tant ever again.”
Two decades later, legal experts remain divided over whether to label the Texas litigation a success.
The Texas state treasury pocketed billions of dollars from the litigation, though only pennies on the dollars won in the case went to smoking-cessation efforts. Teen smoking plummeted, but cigarettes are just as addictive and dangerous. The tobacco companies are more profitable than ever. The trial lawyers representing Morales got filthy rich.
As for Morales, he married a former exotic dancer, lost his bid for governor and eventually went to federal prison following a scandal involving misused campaign funds.
“The litigation exposed the to-
bacco industry’s lies, dramatically reduced teen smoking and resulted in limits in cigarette advertising,” says Matt Myers, general counsel for the Campaign for Tobacco-Free Kids. “But it is far short of meeting the objectives. We didn’t change the industry’s conduct at all. The product is no safer.”
On March 29, 1996, Texas became the sixth state to sue Big Tobacco seeking reimbursement for health care costs related to smoking. Mississippi filed first in 1994, followed by Minnesota, Florida, West Virginia and Louisiana.
The lawsuits were considered extreme long shots. The tobacco companies had been sued more than 400 times and had never lost nor settled a single case. In addition, the legal theories at the heart of the state cases were novel and untested.
Yet plaintiffs’ lawyers unearthed thousands of incriminating internal industry documents that showed the tobacco companies added hundreds of ingredients to cigarettes, targeted teenagers through cartoon marketing efforts and took significant steps to cover up the dangers of smoking.
Houston trial lawyer Harry Potter, who was a Texas special assistant attorney general who supervised the Texas tobacco case, says the tobacco companies in turn demanded the state turn over tens of millions of documents that spanned several decades.
By 1998, more than 40 states had filed suit. Stocks of the major tobacco companies plunged, which caused Wall Street analysts to publicly pressure cigarette makers to seek a global settlement agreement.
Each state lawsuit sought hundreds of millions or even billions of dollars in damages. No case was bigger than Texas’, which legal analysts predicted would bankrupt the tobacco companies if the state were to prevail.
The litigation took a dramatic turn in April 1997, when lawyers for the tobacco companies asked to meet with the Mississippi attorney general and Myers from Tobacco-Free Kids to discuss the possibility of a global settlement that would cover all the states, including Texas, that sued Big Tobacco.
The meeting took place in a conference room at a Marriott Hotel just outside Washington, D.C.
“The CEOs of Phillip Morris and RJR told us that to show they were serious, they agreed right then to give up the Marlboro Man and Joe Camel, their two most successful marketing efforts,” Moore says. “We were stunned. That’s when settlement talks really heated up.”
Mississippi, which was set to go to trial in July 1997, settled for $3.4 billion. Florida settled during jury selection two months later for $11.3 billion.
The Texas lawsuit was the next set for trial.
“Texas suddenly became so very important because it had an actual trial date and that scared the tobacco companies silly,” says Joe Rice, a partner at South Carolina-based Motley Rice, a law firm that represented 31 states, including Texas, involved in the tobacco litigation.
Rice said the Texas lawyers brilliantly sued the cigarette makers in the federal courts of the Eastern District of Texas, which employed a “rocket docket” that streamlined pretrial litigation proceedings so that the parties could have a trial date set within 16 or 18 months.
Richard Daynard, a professor at Northeastern University School of Law and president of the Public Health Advocacy Institute in Boston, says filing in federal court gave the Texas lawyers nationwide subpoena power to call witnesses. The state accused the industry of racketeering and operating a criminal organization, which, if proven, would have tripled monetary damages and lawyer fees against the cigarette companies.
“The Texas case had the potential to bring the tobacco companies to their knees,” Daynard says. “No doubt, the case had a major impact, but it clearly fell far short of Morales’ goals. Cigarettes are definitely no safer today.”
If money is the primary grading point — in most litigation, it is the only grade — the Texas case was an extraordinary success.
In January 1998, the Texas lawsuit settled on the eve of trial for a record $15.3 billion. It’s the largest settlement of a single case in U.S. history.
“The tobacco companies were looking for peace and it was absolutely the right time for the state to push for a settlement,” says Houston trial lawyer Richard Mithoff.
Mithoff represented Harris County in demanding that the cigarette makers also make payments to counties in the state for their smoking-related health care costs.
Mithoff’s efforts, combined with a clever “most favored nation’s” clause that Potter and the state’s outside lawyers included in the Texas settlement agreement, led Big Tobacco to fork over an additional $2.3 billion in July 1998, which increased the overall Texas settlement to $17.6 billion.
The cigarette makers have paid Texas $10.2 billion so far and make annual payments of about $490 million to the state, according to court records.
To pay for the settlement and lawyers’ fees, tobacco companies increased the price of cigarettes by $1.40 per pack, which impacted cash-strapped teenagers the most. As a result, teen smoking plummeted. Surveys showed that nearly 36 percent of teens smoked in 1996, but only 12 percent of them do today
Myers and others point out that Texas budgeted only $10.2 million, or 2 percent of the $490 million payment to be used for anti-smoking efforts in 2016. At the same time, the Campaign for Tobacco-Free Kids says that the tobacco companies will spend an estimated $630 million on marketing their products in Texas.
The public health group says the annual health care costs for treating sick smokers in Texas will be $8.8 billion this year.
State records show that $110 million of the settlement funds go annually into a special endowment to fund health care for children and cancer research. The endowment currently has a balance of more than $2 billion.
Potter, one of the lead settlement negotiators, says the deal nearly imploded over the issue of fees to be paid to the private lawyers representing the state.
“We reached the amount the state would actually receive pretty easily,” he says. “But hammering out the details became like the movie ‘Groundhog Day’ over and over and over.”
Finally, the tobacco companies agreed to set up a special fund to pay the outside lawyers separate from monies going to the states. An arbitration panel selected by lawyers on both sides of the case determined the amount of the legal fees to be paid to the attorneys representing the state.
The private lawyers representing Texas — John Eddie Williams, Walter Umphrey, Harold Nix, Wayne Reaud and John O’Quinn — had a contract with Morales that required they pay all the state’s costs in the litigation and they would be paid 15 percent of any money they won for the state in the litigation. If the state lost, the lawyers would receive nothing.
The panel awarded $3.3 billion to the Big Five, as they were known in legal circles.
So far, Big Tobacco has paid the Texas lawyers nearly $2 billion. The cigarette companies continue to send Umphrey and the group about $120 million annually.
Tort reform groups blasted the lawyers’ fees as excessive and claimed the plaintiff’s lawyers did almost no work to deserve such large sums of money — a claim that even the lawyers for the tobacco companies and leaders in the public health community say is factually untrue.
“It’s a lot of money,” says Moore. “But it is also a free-market system and the tobacco companies agreed to pay it, which meant cigarette prices went up a little more. And that means fewer teenagers can afford to smoke.”
“The bottom line is that the tobacco litigation achieved some tremendous successes and the lawyers should be pleased with that,” says Myers of the Campaign for Tobacco-Free Kids. “But measured against the potential successes and the potential good that could have been achieved, Texas and many other states fell far short of their objectives.”